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Demystifying poverty: which estimate and why

Demystifying poverty: which estimate and why
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First Published: Tue, Jan 19 2010. 08 43 PM IST

Updated: Tue, Jan 19 2010. 08 43 PM IST
How many poor people does India have? This should be an easy enough question to answer in a country known for statistical excellence and a history of academic engagement with poverty estimation. Unfortunately, there are as many estimates of the percentage of poor people as there are committees.
While the Arjun Sengupta committee says it is 77%, the N.C. Saxena committee report puts it at 50%. The World Bank has its own estimate of poverty at 41.6%. Last month, one more report and estimate were added to the list. That was the report by the expert group to review the methods and means of estimating poverty. The group, headed by Suresh Tendulkar, submitted its report to the Planning Commission, and details of it were first reported by Mint. It has revised the estimate of poverty in India for 2004-05 to 37.2% from 27.5% and for rural India to 41.8% from 28.3%, against official estimates for the year announced in March 2007. It has, however, left the all-India urban poverty estimate unchanged at 25.7%.
But why should there be so much confusion on poverty estimates? After all, what changes when we measure poverty differently is not the actual number of poor, but different ways of defining and measuring poverty. Any measurement of poverty requires a distribution of income/consumption of households and a line which demarcates the poor from the non-poor. As far as the distribution of consumption expenditure is concerned, there is one and only one choice available and that is the consumption expenditure survey of the National Sample Survey Organisation (NSSO).
However, the real problem is identifying a suitable poverty line. The poverty line is not any arbitrary line, but is the monetary value of some normative expenditure that is essential for satisfying the basic needs. It is here that the approaches differ. A minor but crucial component of this is that whatever poverty line is chosen, it should be uniform across rural and urban areas and also across states, the only adjustment being that of the cost of living to account for differences in prices. Except for the Tendulkar committee report, all other estimates ignore these essential elements of poverty estimation.
For example, the Sengupta committee has estimated poverty on a poverty line of Rs20 per capita per day. Unfortunately, no basis has been specified for choosing this number. Incidentally, this number is not very different from the Rs19.3 per capita per day suggested by the Tendulkar committee for urban areas. However, the reason why the Tendulkar committee reports only 37% poor as compared with 77% poor by the Sengupta committee is that unlike the latter, which uses the same Rs20 across all states and rural and urban areas, it makes adjustments for varying prices across states and across rural and urban areas. That’s why the rural poverty line suggested by the Tendulkar committee is Rs15 and not Rs19.3. Not making this adjustment would mean that a person spending the same amount of money in real terms would be treated as poor in rural areas, but not in urban areas. The Tendulkar committee report does away with this anomaly. Similarly, the Saxena committee estimates the percentage of poor to be 50% of the population. However, it does this without specifying a poverty line and without any justification for the estimate.
The Tendulkar committee has suggested poverty lines that are not only normatively superior to the existing official poverty line, but has also treated cost of living differences more systematically than those implicit in the existing official poverty lines. The committee has suggested three changes to the existing methodology. First, it has decided to use one poverty line for all the residents of the country, correcting only for cost of living differences. Secondly, it has delinked the calorie norms from poverty estimates because they aren’t an apt measure of either nutrition or food expenditure. At the same time, it has checked the suitability of the new poverty lines against some normative requirements of food anchored to malnutrition norms from the national family health survey. Finally, it has redefined the normative criteria to include education and health, which now have a significant share in a poor person’s expenditure. Being rooted to contemporary norms and consumption patterns, these are definitely better than the existing methodology.
Nonetheless, as with any estimate, these are only as good as the assumptions behind the adjustments. These only represent the floor of what may be considered minimum basic needs for a citizen to be classified as poor, given contemporary realities. Because, even with this poverty line, normative expenditure on health may not be met in all states although they do meet education and food expenditure norms in most states. Finally, it must be made clear that what the Tendulkar committee has suggested is the methodology for estimation of poor. The estimates only tell us how many poor there are in a state or in the country as a whole. But these in no way suggest a methodology to pick out a person as poor for the purpose of identification of beneficiaries for the census conducted by the ministry of rural development.
Himanshu is an assistant professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi. Farm Truths looks at issues in agriculture and runs on alternate Wednesdays.
Respond to this column at farmtruths@livemint.com
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First Published: Tue, Jan 19 2010. 08 43 PM IST