Poverty Estimation in India

Syllabus: GS3/Economy

Context

• According to a study by economists Surjit S Bhalla and Karan Bhasin, India has witnessed a sharp reduction in poverty and inequality over the past decade.

Major Highlights

• The study is based on government household expenditure data from 2022-23 and 2023-24.
• Poverty Reduction: India’s poverty rate at the $3.65 PPP line dropped from 52% in 2011-12 to 15.1% in 2023-24. Extreme poverty at the $1.90 PPP line is now below 1%.
• Consumption Growth: Largest improvements in consumption seen in the bottom three deciles of the population, showing record increases.
• Declining Inequality: Consumption inequality has decreased, with the Gini coefficient dropping from 37.5 in 2011-12 to 29.1 in 2023-24.
• Global Context: India’s reduction in inequality is exceptional for a large, fast-growing economy, with only Bhutan and the Dominican Republic having better records (with smaller populations).
• New Poverty Line Needed: Current poverty lines are outdated, suggesting a new benchmark based on the bottom 33rd percentile or relative poverty measures like Europe’s.
  • NITI Aayog has yet to revise official poverty estimates, last set by the Tendulkar and Rangarajan committees.

Poverty Line Estimation in India

• Tendulkar committee (2009): Poverty line in the Suresh Tendulkar methodology was expenditure of ₹33 a day in urban areas and ₹27 a day in rural areas.
  • The national poverty line for 2011-12 was estimated at Rs. 816 per capita per month for rural areas and Rs. 1,000 per capita per month for urban areas.
• Rangarajan committee(2014): In the Rangarajan methodology, it was ₹47 a day in urban areas and ₹30 a day in rural areas.
  • The government did not take a call on the report of the Rangarajan Committee,  therefore, poverty is measured using the Tendulkar poverty line.
• International Poverty Line: The World Bank defines a person as extremely poor if a person is living on less than $2.15 per day, which is adjusted for inflation as well as price differences between countries.

Concerns with India’s Calculation of Poverty Line

• Inadequate Thresholds: The updated poverty line of Rs 965 (urban) and Rs 781 (rural) per month is seen as too low to reflect basic living standards, leading to criticism for not accurately capturing poverty.
• Outdated Methodology: It focuses on calorie intake and fails to reflect modern consumption patterns and needs.
• Limited Consideration of Non-Food Needs: The poverty line doesn’t fully account for rising private expenditures in health, education, and other essential services.
• State-Level Variations: The same poverty line is applied uniformly across states despite significant regional cost-of-living differences, which distorts the accuracy of poverty assessments.
• Lack of Regular Updates: The official poverty line hasn’t been updated in alignment with newer economic realities, such as inflation or changes in consumption patterns, making it less relevant.

Way Ahead

• Periodically revise the poverty line to reflect current economic conditions, inflation, and changing consumption patterns.
• Broaden Criteria: Incorporate non-food factors like health, education, and housing into the poverty line calculation to better reflect the true cost of living.
• Regional Adjustments: Implement region-specific poverty lines to account for variations in cost of living across states and regions.
• Adopt Modern Methodologies: Move away from outdated calorie-based measures and adopt more holistic indicators, such as nutritional needs and overall well-being.

Source: SJ