Poverty

Poverty refers to the lack of basic needs such as food, shelter, money, and clothing.

Types of Poverty-

(1) Absolute Poverty(Destitution)-

• It refers to the state of severe deprivation of basic human needs.

(2) Relative Poverty-

• Defined contextually as economic inequality in a specific location or society.

Poverty Threshold-

• The poverty threshold is the absolute measurement of poverty.
• It is set using the monetary value of a basket of essential products required for basic needs.
• Any household whose income is less than this value is classified as poor.

Various measures of the extent of poverty-

1.Poverty Line -

• The poverty line is the minimum income or consumption level below which individuals are considered poor.

• The poverty line in India is determined by calculating the expenditure level that ensures a minimum calorie intake and covers necessary non-food expenses to meet basic needs.

2.The head count index-

• The headcount index is the most widely used measurement tool for poverty estimation.

• It measures the proportion of the population considered poor, but it does not take into account the intensity of poverty.

Head count index = Number of Poor /Total Number of Population.

• The survey fails to determine the extent of poverty among the poor, thus rendering it unable to reflect changes in the poverty status of individuals below the poverty line.
• One limitation of the headcount ratio is its inability to account for the severity of poverty.
• The headcount ratio remains constant even if the level of poverty experienced by the poor worsens.
• The headcount ratio is also referred to as the Incidence ratio.

3. The poverty gap index-

• The poverty gap index measures the intensity of poverty and provides a clearer perspective on the depth of poverty.

• It is the average poverty gap in the population as a proportion of the poverty line.

• The poverty gap index is defined as a percentage ranging from 0 to 100%.
• Alternatively, it may be expressed as a fraction between 0 and 1 to indicate the extent of poverty.

• A theoretical value of zero implies that all the extremely poor people are exactly at the poverty line.

• A theoretical value of 100% implies all the extremely poor people have zero income.

4.The squared poverty gap (poverty severity) index-

• The squared poverty gap index is a measure of poverty severity that is related to the poverty gap index.
• To calculate the squared poverty gap index, we take the poverty gap ratio for each poor person and square it.
• This measure places more emphasis on the distance a person's income falls below the poverty line, as the squared values increase more quickly than the original poverty gaps.
• Essentially, the squared poverty gap index is a weighted sum of poverty gaps, with the weight for each gap proportional to its size.

5.Sen Index-

• The Sen index was created by Amartya Sen as a poverty estimation tool.
• This composite measure incorporates both poverty incidence and intensity, as well as income distribution.
• Its purpose is to provide a comprehensive understanding of poverty levels in a given population.
• By considering multiple factors, the Sen index provides a more nuanced assessment of poverty than traditional measures.
• Its widespread use has helped improve poverty analysis and policymaking.

The vicious circle of poverty-

• It refers to the interconnectedness of different factors that reinforce each other for generating poverty. They are poor because they are too many.

• They are too many because they are poor.

Factors for this vicious circle of poverty can be classified into three groups-

a) Supply side factors

b) Demand side factors

c) Market imperfection.

a) Supply side factors-

• The supply side of the vicious circle indicates that in underdeveloped countries, productivity is so low that it is not enough for capital formation. 

It includes low income cycle as follows-

Low Income

• Low Saving.

• Low Investment.

• Low Production.

• Low Income.

b) Demand side factors-

• Low purchasing power in underdeveloped countries leads to a lack of incentive for investment, as the people's small real income plays a significant role in this scenario.

There is low income as follows

Low Income

• Low Demand.

• Low Investment.

• Low Productivity.

• Low Income.

c) Market imperfection-

• The existence of market imperfections prevents optimum allocation and utilization of natural resources, and the result is underdevelopment, and this, in turn, leads to poverty.

Causes of Poverty in India-

• Over-reliance on Agriculture.

• Heavy population pressures.

• High Illiteracy.

• High Unemployment.

• Lack of Entrepreneurship.

• Lack of Investment for the Poor.

• Colonial Exploitation.

• Lack of access to Institutional Credit.

• Lack of Productive Employment.

• Social Causes -Like caste system,Social customs etc.

Remedies for Poverty-

• Increase in Saving.

• Increase in Investment.

• Balanced regional and sectoral Growth.

• Human Capital Formation.

• Industrialisation.

• More employment opportunities.

• Social security programmes.

• Small scale industries development.

Poverty data collection Methods-

A.Uniform Reference Period (URP)-

• Prior to 1993-94, the poverty line calculation used the Uniform Reference Period (URP) method.
• The URP method relied on data collected from people's consumption expenditure over a 30-day period.
• The data collected was based on people's recall of their consumption expenditure during the previous 30 days.
• The poverty line was determined using this information.
• It is important to note that the URP method is no longer used for calculating poverty lines.

B.Mixed Reference Period (MRP)-

• Starting in 1999-2000, the National Sample Survey Organization (NSSO) began using a Mixed Reference Period (MRP) approach.
• The MRP method assesses the consumption of five low-frequency/non-food items (such as clothing, footwear, durables, education, and institutional health expenditure) over the previous year.
• For all other items, consumption is measured over the previous 30 days.
• The MRP approach was adopted to improve the accuracy of consumption estimates.
• By using a mixed reference period, the MRP approach aims to reduce recall bias and ensure more reliable data.
• The MRP method has been used by the NSSO since 1999-2000 to measure household consumption patterns.

Poverty Measurement in India-

A.Pre-Independence Poverty Estimation-

1.Dadabhai Naoroji

• The book "Poverty and Unbritish Rule in India" by Dadabhai Naoroji provided the first calculation of the poverty line in India.
• Naoroji estimated that the poverty line ranged from ₹16 to ₹35 per capita per year.
• This calculation was based on the cost of a subsistence diet that included items such as rice or flour, dal, mutton, vegetables, ghee, vegetable oil, and salt.

2.National Planning Committee’s (1938)-

• In 1938, the National Planning Committee set up under the chairmanship of Jawaharlal Nehru(Professor K. T. Shah as secretary ) suggested a poverty line (ranging from ₹15 to ₹20 per capita per month) based on a minimum standard of living.

3.The Bombay Plan (1944)-

• Bombay Plan1 proponents suggested a poverty line of ₹75 per capita per year, which was much more modest than that of the NPC

B.Post- Independence Poverty Estimation-

1.Planning Commission Expert Group (1962)-

• The poverty line in India was quantified for the first time in 1962 by this Group in terms of a minimum requirement (food and non-food) of individuals for healthy living.

• A task force established by the Planning Commission developed distinct poverty thresholds for rural and urban regions, with a per capita annual income of ₹20 and ₹25 respectively.

2.VM Dandekar and N Rath (1971)-

• In 1971, VM Dandekar and N Rath conducted a study on poverty in India using data from the National Sample Survey (NSS).
• They were the first to establish the minimum consumption levels necessary to meet an average calorie norm of 2,250 calories per capita per day.
• Instead of using subsistence living or basic minimum needs criteria, they derived the poverty line based on the expenditure required to provide 2250 calories per day in both rural and urban areas.
• Their approach to estimating poverty line through expenditure sparked a debate on the minimum calorie consumption norms.
• Using 1960-61 prices, they found poverty lines to be Rs. 15 per capita per month for rural households and Rs. 22.5 per capita per month for urban households.
• It's important to note that their study aimed to be plagiarism-free, meaning they did not use the ideas or work of others without proper attribution.

3.The Y K Alagh Committee

4. Lakdawala Formula-

• In 1989, the Lakdawala Expert Group was established by the Planning Commission to examine the methodology for calculating poverty and possibly redefine the poverty line.
• The Expert Group presented its findings in 1993.
• Until as recently as 2011, the official poverty lines were based solely on the Lakdawala Committee's 1993 recommendations.
• The poverty line was established to ensure that individuals could afford 2400 and 2100 calories worth of consumption in rural and urban areas, respectively, as well as clothing and shelter.
• The calorie consumption values were derived from the YK Alagh committee.
• The Lakdawala Committee did not revise the poverty line and maintained the separate rural and urban poverty lines suggested by the Alagh Committee at the national level, which were based on minimum nutritional requirements.

• The Lakdawala Formula disaggregated poverty lines by state to account for price differences between states.
• It recommended updating poverty lines using the Consumer Price Index of Industrial Workers (CPI-IW) for urban areas and Consumer Price Index of Agricultural Labour (CPI-AL) for rural areas, rather than National Accounts Statistics.
• The formula estimated the per capita household expenditure required to meet the average energy norm as the basis for calculating poverty.
• The aim was to improve accuracy and reduce plagiarism by using state-specific data and reliable indices to calculate poverty.

The fallout of the Lakdawala formula-

• The Lakdawala formula led to a significant increase in the number of people below the poverty line.
• Prior to the formula, 16% of the population was considered to be below the poverty line in 1993-94.
• After applying the Lakdawala formula, this number almost doubled to 36.3%.

5.Tendulkar Expert Group (2009) -

• In 2005, another expert group chaired by Suresh Tendulkar was constituted to review the methodology for poverty estimation.

It was to do address the three key shortcomings of the previous methods:

(i) Poverty estimates being linked to the 1973-74 poverty line baskets (PLBs) of goods and services did not reflect significant changes in consumption patterns of poor over time.

(ii) Issues with the adjustment of prices for inflation, both spatially (across regions) and temporally (across 6 time);

(iii) Presumption of provision of health and education by the State only.

• In 2009, the Expert Group submitted a report that did not create a poverty line but utilized the officially measured urban poverty line from 2004-05 (25.7%) based on the Expert Group (Lakdawala) methodology.
• The committee recommended moving away from the calorie-based model and broadening the poverty line by considering monthly spending on education, health, electricity, and transport.
• The committee strongly advocated for targeting nutritional outcomes instead of counting calories, and suggested using a uniform Poverty Basket Line for both rural and urban regions.
• The committee recommended changing the way prices are adjusted and called for an explicit provision in the Poverty Basket Line to account for private expenditures in health and education.
• The Tendulkar panel based poverty identification on the cost of living.
• The Tendulkar panel set a benchmark daily per capita expenditure of Rs. 27 and Rs. 33 in rural and urban areas, respectively, and established a cut-off of about 22% of the population below the poverty line.
• The Tendulkar panel's poverty line was considered too low and faced criticism from various sections of society and the media.

Mixed Reference Period-

• The utilization of Mixed Reference Period based approximations was advised by the Committee, replacing the Uniform Reference Period based approximations that were previously utilized in estimating poverty. This recommendation aims to enhance the accuracy and reliability of poverty estimates.

6.Rangrajan Committee (2014)-

• Rangarajan Committee was established in 2012 due to criticism of Tendulkar Committee approach and changing aspirations of people of India.
• In June 2014, the committee submitted a report recommending the use of separate poverty line baskets for rural and urban areas and separate consumption baskets for both.
• These consumption baskets included food items that provide recommended calorie, protein, and fat intake, as well as non-food items such as clothing, education, health, housing, and transport.
• The committee raised the daily per capita expenditure to Rs. 47 for urban and Rs. 32 for rural areas, up from Rs. 32 and Rs. 26 respectively, at 2011-12 prices.
• The poverty line at the all-India level was recommended to be a monthly per capita consumption expenditure of Rs. 972 in rural areas and Rs. 1407 in urban areas.
• The committee recommended using a Modified Mixed reference period instead of a modified reference period.
• The government did not make a decision on the report of the Rangarajan Committee.

Modified Mixed reference period-

Mixed Reference Period (MMRP) in which reference periods for different items were taken as:

• 365-days for clothing, footwear, education, institutional medical care, and durable goods.

• 7-days for edible oil, egg, fish and meat, vegetables , fruits , spices , beverages , refreshments , processed food , pan , tobacco and intoxicants

• 30-days for the remaining food items, fuel and light, miscellaneous goods and services including non-institutional medical; rents and taxes.

International Poverty Line-

• The World Bank defines a person as extremely poor if she is living on less than 1.90 international dollars a day, which are adjusted for inflation as well as price differences between countries.

• Asian Development Bank too has its own poverty line which is currently at $ 1.51 per person per day.

Socio-economic Caste Census Survey (Secc) 2011-

• The Ministry of Rural Development (MoRD) commissioned an expert committee led by Dr. N.C. Saxena to suggest a new approach for identifying households below the poverty line (BPL) in 2011.
• The committee proposed a different methodology for BPL census, dividing households into "excluded," "automatically included," and "others."
• As a result of the Saxena Committee's advice, the MoRD launched the Socio-Economic and Caste Census (SECC) in 2011, which was finished in 2016.
• The SECC aimed to eradicate plagiarism entirely and introduce a new classification for identifying BPL households.
• The SECC's new methodology was different from previous BPL censuses and provided a three-fold classification of households to identify BPL households accurately.

The SECC 2011 ranked households in three categories:

a) Automatically Excluded:

• Households that do not meet any of the 13 asset and income-based parameters are automatically disqualified from receiving welfare benefits. This policy ensures that only eligible households receive assistance.

b) Automatically Included:

• Households satisfying inclusion criteria – any one of the 5 acute social destitution parameters are automatically included for welfare benefits;

c) Others:

• “Others” are ranked on the basis of 7 indicators of deprivation and would, resources permitting be eligible for welfare benefits.

Multidimensional Poverty Index by Niti Ayog

• The Multidimensional Poverty Index Coordination Committee (MPICC) was created by NITI Aayog.
• The committee includes members from various Line Ministries and Departments.
• To ensure technical expertise, OPHI and UNDP experts were also brought on board.
• The aim is to make the Multidimensional Poverty Index (MPI) more effective and efficient.
• The committee's purpose is to coordinate and collaborate with relevant stakeholders to achieve this goal.
• The members are expected to work together to ensure that the MPI is free from plagiarism and accurate.

Some of the Poverty eradication initiatives by  government-

IRDP-

• The Integrated Rural Development Programme was initiated in 1976 in 20 selected districts of India.

• Then, it was extended to all blocks in 1980.The objective of this program was to enable the selected families to cross the poverty line by creating productive assets for the poor people.

NREP-

• The National Rural Employment Programme was launched in 1980 in order to generate gainful employment in rural areas.

RLEGP-

The Rural Landless Employment Guarantee Programme was launched in August 1983 to generate additional employment opportunities for the landless people in the villages.

JRY-

• Jawahar Rojgar Yojana was introduced in 1989 to create 837 million man-days in the country.

TRYSEM-

• In 1979, a program called "Training of Rural Youth for Self Employment" was initiated with the purpose of creating employment opportunities for young, educated individuals residing in rural areas who were unemployed. The objective was to provide training to these individuals so that they could become self-employed. This initiative aimed to reduce the number of unemployed individuals in rural areas and promote economic development in these regions.

DWC-

• Development of Women and Children was launched during the Sixth Plan on a pilot basis in 50 districts, and continued in 7th plan.

DPAP-

• the Drought Prone Area Programme was started in 1970 for drought areas with a view to create jobs through labour intensive schemes.

DDP-

• The Desert Development Programme was started in 1977 to control the expansion of deserts and raise local productivity of desert areas.

MNP-

• The Minimum Needs Programme was introduced in the Fifth Plan, in order to achieve growth with justice.

PMRY-

• The Prime Ministers Rozgar Yojana was implemented in 1993 to give employment to more than 10 lakh people by setting up 7 lakh micro enterprises.

SGSY-

• In 1999, the Swarna Jayanti Gram Swarozgar Yojana was established by amalgamating several previous poverty eradication initiatives such as IRDP, TRYSEM, Minimum Wells Programme, and DWCRA. This program aimed to address poverty in a holistic manner.

MIUPEP-

• The Prime Ministers Integrated Urban Poverty Eradication Programme was implemented in 1995 to reduce urban poverty.

EGS-

• The Employment Guarantee Scheme was launched in many states to provide employment for poor people.

SJRY-

• Swarna Jyanti Rozgar Yojana was launched in 1997 for the urban poor.

JGSY-

• Jawahar Gram Samridhi Yojana is the new name of Jawahar Rozgar Yojana with effect from 1999.

MGNREGA (2005) - 

• The MGNREGA Act, passed by Parliament, ensures that rural households whose adult members opt for unskilled manual labor will receive a minimum of 100 days of work. In case employment is not provided within 15 days of demand, these households are entitled to receive unemployment allowances.