Extreme Poverty

As per a policy research working paper published by the World Bank recently, Extreme Poverty is estimated to have declined 12.3 percentage points between 2011 and 2019 in India.

What does the report say?

• The World Bank policy research working papers aim to encourage exchange of ideas on development and quickly disseminates the findings of research in progress.
• As per the study, farmers with small landholding sizes have experienced higher income growth.
• Real incomes for farmers with the smallest landholdings have grown by 10 percent in annualised terms between the two survey rounds [2013 and 2019] compared to a 2 percent growth for farmers with the largest landholding.
• The World Bank’s paper is significant as India has no official estimation of recent periods.
• The last expenditure survey was released in 2011 by the National Sample Survey Organisation (NSSO), when the country had also released official estimates of poverty and inequality.

What is Extreme Poverty?

• The World Bank defines the extreme poor as those living on less than USD 1.90 a day. It is based on information about basic needs collected from 15 low-income countries.
• About 9.2% of the world, or 689 million people, live in extreme poverty on less than USD 1.90 a day, according to the World Bank.
• Extreme Poverty is identified in two ways:
  • • Absolute Poverty: It is when a person cannot afford the minimum nutrition, clothing and shelter needs in their country.
    • Relative Poverty: It is when a household income is below a certain percentage, typically 50% or 60%, of the median income of that country.

Poverty Estimation –

• Poverty Line – The conventional approach to measuring poverty is to specify a minimum expenditure (or income) required to purchase a basket of goods and services necessary to satisfy basic human needs and this minimum expenditure is called the poverty line.
• Poverty Line Basket – The basket of goods and services necessary to satisfy basic human needs is the Poverty Line Basket (PLB).
• Poverty Ratio – The proportion of the population below the poverty line is called the poverty ratio or headcount ratio (HCR).
• Households with consumption expenditures below the poverty line are said to be “Below the Poverty Line (BPL)” and deemed poor.
• Thus, Poverty in India is based on two critical components:
  • • Information on the consumption expenditures and its distribution across households is provided by the National Sample Survey (NSS) consumption expenditure surveys;
    • These expenditures by households are evaluated with reference to a given poverty line.

Poverty Line Estimation Post-Independence –

• Since independence, six official committees have so far estimated the number of people living in poverty in India:
  • • The Working group of 1962,
    • V N Dandekar and N Rath Committee (1971),
    • Y K Alagh Committee (1979),
    • D T Lakdawala Committee (1993),
    • Suresh Tendulkar Committee (2009),
    • C Rangarajan Committee (2014).
• The Central government did not take a call on the report of the Rangarajan Committee; therefore, poverty is measured using the Tendulkar poverty line.

Tendulkar Committee’s Recommendations –

• Shift from Calorie Consumption based Poverty Estimation – It defined the poverty line on the basis of monthly spending on food, education, health, electricity and transport.
• Uniform Poverty line Basket – Unlike Alagh committee (which relied on separate Poverty Line Basket (PLB) for rural and urban areas), Tendulkar Committee computed new poverty lines for rural and urban areas of each state based on the uniform poverty line basket and found that all India poverty line was:
  • • ₹446.68 per capita per month in rural areas (2004-2005)
    • ₹578.80 per capita per month in urban areas (2004-2005)
    • In 2010-2011 it was Rs. 1000 for urban and Rs. 816 for rural areas.
• Inflation Adjustment – It recommended the adjustment of prices for inflation, both spatially (across regions) and temporally (across time)
• Mixed Reference Period – The Committee recommended using Mixed Reference Period (MRP) based estimates, as opposed to Uniform Reference Period (URP) based estimates that were used in earlier methods for estimating poverty.
  • • URP – From 1993 -1994, the poverty line was based on a URP, which involved asking people about their consumption expenditure across a period of over 30-days.
    • MRP – From 1999-2000 onwards, the NSSO switched to an MRP method which measures consumption of five low-frequency items (clothing, footwear, durables, education and institutional health expenditure) over the previous year, and all other items over the previous 30 days.