Time to humanise the definition of poverty line

In its March 19 report, the Planning Commission has claimed that poverty has declined in India by 7.3 per cent.

According to the commission’s estimates, based on the Suresh Tendulkar committee formula, poverty ratio has declined to 29.8 per cent in 2009-10, from 37.2 per cent in 2004-05. But this ratio has been worked out based on a controversial per capita daily consumption of Rs 28.65 in cities and Rs 22.42 in rural areas.

According to Planning Commission deputy chairman Montek Singh Ahuwalia, the consumption level would not be linked with the social sector schemes of the government. But to him the inclusion of money spent on the mid-day meal scheme in so-called private household expenditure was correct because the scheme is a “conscious act of policy” by the government to boost consumption.

But the inclusion of the amount spent on the mid-day meal scheme provided to students at government schools as part of private consumption can exaggerate the decline in poverty. Also the mid-day meal scheme was not there in 2004-05 and the data of 2009-10 is not comparable with that of 2004-05.

There is also the possibility that including the mid-day meal scheme in private consumption could lead to double counting. The poverty line fixed by the Tendulkar committee was criticised on the ground that it underestimated the scale of population that needed special assistance. The All India Democratic Women’s Association has alleged that the Planning Commission is trying to obfuscate data so as to justify the exclusion of a large number of the poor and deny them the benefits of anti-poverty and welfare schemes.

In the context of widespread criticisms, prime minister Manmohan Singh announced a decision to have the poverty estimates measured by a technical committee.

Poverty takes away the rights of a human being to live in good health, to obtain an education and to enjoy adequate nutrition. Poverty is correlated with the lack of ownership of productive assets like land holdings. The poor lack access to markets, especially the markets for credit, insurance, land, and labour. Prolonged condition of poverty leads to sale of assets. Removal of poverty is a fundamental goal of economic development. In India almost all five year plans had this as a goal.

Therefore an appropriate measure of poverty is an important consideration in policies that target the poor.

Critical threshold

Central to all discussions on poverty is the notion of a poverty line. Poverty line is a critical threshold of income, consumption or more generally, access to goods and services below which individuals are declared to be poor. The poverty line then represents a minimum level of ‘acceptable’ economic participation in a given society at a given point in time.

For instance we could collect data on minimum nutrient levels that make up an adequate diet, on the prices of foodstuffs that contain such nutrients, and on the costs of shelter and clothing, and then add up the consumption expenditures needed to obtain these basic requirements to obtain an estimate of poverty line for a particular society. Indian poverty lines have traditionally been drawn by using estimates of expenditures necessary to guarantee a minimum consumption of calories. 

Poverty measurement in India started with Pitambar Pant’s exercise in 1962. There has been no uniform measure of poverty in India. The Arjun Sengupta report, based on data between the period 1993-94 and 2004-05, states that 77 per cent of Indians live on less than Rs 20 a day .The N C Saxena committee report states, on account of calorific intake apart from nominal income, that 50 per cent of Indians live below the poverty line.

The expert group headed by Prof Tendulkar estimated poverty based on private household consumption of Indian households as collected by the National Sample Survey Organisation. The Planning Commission has accepted the Tendulkar committee report which says that 37 per cent of people in India live below the poverty line.

It is important to note that Prof Tendulkar moved away from anchoring the poverty lines to a calorie intake norm in view of the fact that calorie consumption calculated by converting the consumed quantities in the last 30 days as collected by NSS has not been found to be well correlated with the nutritional outcomes observed from other specialised surveys overtime or across spaces (i.e. between states or rural and urban areas).

The most commonly used poverty measure is the head count ratio, which simply measures the fraction of the population below the poverty line. Though very popular, the head count ratio fails to adequately account for the intensity of poverty. A planner who uses the head-count ratio as a political yardstick for poverty reduction will be tempted to target the segment among the poor who are very close to the poverty line and who are not in the greatest need of help.

To remedy this shortcoming, we can use measures such as the poverty gap ratio or the income gap ratio, which look at the total shortfall of poor incomes from the poverty line and express this shortfall as a fraction of national income or as a fraction of the total income required to bring all the poor to the poverty line. It is hoped that the technical committee to be formed by the prime minister will address all issues and arrive at a foul proof poverty measure for India.

(The writer is a professor of economics at the Christ University, Bangalore)