SPANDANSystem of Promoting Appropriate Dynamism for Agriculture and Nutrition

Contents

• The concept of poverty• Various estimates of poverty• Measurement of poverty• Inequality• Measures of inequality

The concept of poverty• Poverty can be defined as a social phenomenon in which a

section of the society is unable to fulfill even its basic necessities of life.

• When a substantial segment of a society is deprived of the minimum level of living and continues at a bare subsistence level, that society is said to be plagued with mass poverty.

• Poverty has many dimensions and does not merely entail on low levels of income or expenditure. Amartya Sen (1992, 2001) has defined poverty as a condition that results in an absence of the freedom to choose arising from a lack of what he refers to as the capability to function effectively in society.

• Poverty means different things in different countries. The United Nations‘ human-development index assesses countries across a range of indicators, such as schooling and life expectancy.

• The World Bank’s Voice of the poor, based on research with over 20,000 poor people in 23 countries, identifies a range of factors which poor people identify as part of Poverty. These are

livelihoods, excluded location, physical limitation, gender relationship, lack of security, problems in social relationship, weak community organization, and limited capabilities.

In India, the generally accepted definition of poverty emphasises minimum level of living rather than a reasonable level of living.

•Absolute Poverty- is expressed in terms of minimum requirements of cereals, pulses, milk, vegetables, butter, or calorie intake and is conditioned by relative levels of living prevalent in the country.

•Relative Poverty- is estimated on the basis of income distribution of the population in different fractile of groups and the levels of living of the top 5 to 10 per cent with the bottom 5 to 10 per cent of the population reflecting the relative standards of poverty.

Various estimates of povertyLets look into the history of poverty estimation in India ?

In 1962, the planning commission constituted a working group to estimate poverty nationally, and it formulated separate poverty lines for rural and urban areas – of Rs 20 and Rs 25 per capita per year respectively.

V M Dandekar and N Rath made the first systematic assessment of poverty in India in 1971.

• They argued that the poverty line must be derived from the expenditure that was adequate to provide 2250 calories per day in both rural and urban areas.

• This generated debate on minimum calorie consumption norms while estimating poverty and variations in these norms based on age and sex.

Alagh Committee (1979): In 1979, a task force constituted by the planning commission for the purpose of poverty estimation, chaired by YK Alagh, constructed a poverty line for rural and urban areas on the basis of nutritional requirements. Poverty estimates for subsequent years were to be calculated by adjusting the price level for inflation.

Source: Report of the Task Force on Projections of Minimum needs and Effective consumption demand (1979)

Lakdawala Committee (1993): In 1993, an expert group constituted to review methodology for poverty estimation, chaired by D T Lakdawala, made the following suggestions:

(i) consumption expenditure should be calculated based on calorie consumption;

(ii) state specific poverty lines should be constructed and these should be updated using the consumer price index of industrial workers (CPI-IW) in urban areas and consumer price index of agricultural labour (CPI-AL) in rural areas; and

(iii) discontinuation of scaling of poverty estimates based on national accounts statistics.

Source: Report of The Expert Group on Estimation of Proportion and Number of Poor (1993)

Tendulkar Committee (2009): Another expert group to review methodology for poverty estimation, chaired by Suresh Tendulkar, was constituted by the planning commission to address the following shortcomings of the previous methods:

• consumption patterns were linked to the 1973-74 poverty line baskets (PLBs) of goods and services, whereas there were significant changes in the consumption patterns of the poor since that time, which were not reflected in the poverty estimates; and

• earlier poverty lines assumed that health and education would be provided by the State and formulated poverty lines accordingly.

Tendulkar committee recommended four major changes: (i) a shift away from calorie consumption based poverty

estimation; (ii) a uniform poverty line basket (PLB) across rural and urban

India; (iii) a change in the price adjustment procedure to correct spatial

and temporal issues with price adjustment; and (iv) incorporation of private expenditure on health and education

while estimating poverty. 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.

Source: Report of the Expert Group to Review the Methodology for Estimation of Poverty (2009)

Rangarajan Committee: In 2012, the planning commission constituted a new expert panel on poverty estimation, chaired by C Rangarajan with the following key objectives:

• to provide an alternate method to estimate poverty levels;• to examine divergence between the consumption estimates

based on the NSSO methodology and those emerging from the national accounts aggregates;

• to review international poverty estimation methods and indicate whether based on these, a particular method for empirical poverty estimation can be developed in India; and

• to recommend how these estimates of poverty can be linked to eligibility and entitlements under the various schemes of the government of India.

Measurement of Poverty

There are various measures of the extent of poverty• The head count index.• The poverty gap index.• The squared poverty gap (Poverty Severity) index.

Head count index• It simply measures the proportion of the population that is

counted as poor. • Formula: Head count index = No. of poor / Total no. of

population

• Significancei. The most common method of measuring and reporting

Poverty is the headcount ratio, given as the percentage of population that is below the Poverty line.

ii. it ignores the depth of poverty; if the poor becomes poorer, the headcount index does not change.

• Weaknessesi. It does not take the intensity of poverty into account.ii. The poverty estimates should be calculated for individuals

and not the households.

Poverty Gap Index

• Poverty gap index is a measure of the intensity of poverty.

• The poverty gap (P1) is defined as average difference between poor households’ expenditure and the poverty line. The gap is considered to be zero for everyone else.

• Poverty gap index estimates the depth of poverty by considering how far, on the average, the poor are from that poverty line.

• Formula: P1=1/N

where z = poverty line

yi = consumption/expenditure of household,

n= number of poor in the population

Squared Poverty Gap Index

• Squared poverty gap index, also known poverty severity index or is related to poverty gap index.

• It is calculated by averaging the square of poverty gap ratio.

• The Squared poverty gap Index is more beneficial to the poor who are further away from poverty.

• Formula: SPGI=

where,

n is the size of the sample

z is the poverty line,

Gi ( z- yi) is the poverty gap

α is a parameter

Inequality• Inequality shows how resources are distributed across the whole

society. • It reflects the difference between average income, and what

poor and rich people earn,• highlights how different states redistribute or share the income

they produce. • Generally countries with high levels of inequality are also likely

to have high levels of poverty and those with lower levels of inequality are likely to have lower levels of poverty.

• This shows that the problem of poverty is fundamentally linked to the issue of how resources are distributed and redistributed in a country.

Measures of inequality Lorenz Curve:

• It is used to represent income distribution, where it shows for the bottom x% of households, what percentage (y%) of the total income they have. It can also be used to show distribution of assets.

Gini coefficient

• Gini index measures the extent to which the distribution of income or consumption expenditure among individuals or households within an economy deviates from a perfectly equal distribution.

• The Gini index measures the area between the Lorenz curve and a hypothetical line of absolute equality, expressed as a percentage of the maximum area under the line.

• Thus a Gini index of 0 represents perfect equality, while an index of 100 implies perfect inequality.

Gini coefficient and measure of inequality

Fig: Gini coefficient and aggregate measure of inequality

Reference:

• Gaurav Datt, K. P. (2013). Indian Economy (70th revised edition ed.). New Delhi: S Chand Publications.

• Commission, P. (December 2012). Report of the Expert Group to Recommend the Detailed Methodology for Identification of Families Living Below Poverty Line in Urban Areas. New Delhi: Planning Commission, Government of India.

• Commission, P. (January 1979). Report of the Task Force on Projections of Minimum Needs and Effective Consumption Demand. New Delhi: Planning Commission.

• Commission, P. (July 1993). Report of the Expert Group on Estimation of Proportion and Number of Poor. New Delhi: Planning Commission.

• Commission, P. (November 2009). Report of the Planning Group to Review the Methodology for Estimation of Poverty. New Delhi: Planning Commission.

• Commission, P. (3 October, 2011). Report of the Working Group on Urban Poverty, Slums, and Services Delivery System. New Delhi: Steering Committee on Urbanization, Planning Commission.

• Commission, P. (June 2014). Report of the Expert Group to Review the Methodology for Measurement of Poverty . New Delhi: Planning Commission Government of India.

• Commission, P. (2007-12). Report of the Steering Committee on Rapid Poverty Reduction and Local Area Development. New Delhi: Planning Commission, Government of India.