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Udit Misra
I cover economy and policy issues based out of New Delhi.

India’s Poverty Estimates: Don’t just get Outraged, Understand them!

In a curiously timed press release yesterday, the Planning Commission of India, government’s official think tank, announced the latest “poverty line” for India.

Now, poverty line in India, along with the other related issues, has almost become a mysterious concept. This is primarily because there are too many people, who know too little about poverty, speaking too much about it.

A usual suspect is our everyday TV news anchor, who feigns gross outrage at the insensitivity of the poverty estimates, irrespective of the number in question. This fake outrage – and it is fake because no one seems to have taken the trouble to understand why at all do we have poverty estimates and how do we calculate them- on the part of media routinely misinforms and misguides the readers about this very important issue.

One big casualty, for example, is the reputation of Late Prof. Suresh Tendulkar, one of the most important scholars on poverty in the world. The way Tendulkar Committee’s efforts are manhandled in casual chats, it appears as if the legendary economist had an ulterior interest in keeping India poor! But, I wonder if people know that before Tendulkar revised them upwards,India’s poverty line was Rs 12 for rural areas and Rs 17 for urban areas.

Let me spend some time to clear the haze a bit and attempt to de-mystify a few things about India’s poverty and its estimates.

However, given the various misconceptions around it, I am tempted to repeat Sherlock Holmes, when he said, “This is quite a three pipe problem.” I would urge the readers to hear me out before reaching any conclusions.

Let us look at the facts first.

According to yesterday’s statement, using the Suresh Tendulkar Committee’s method  and the latest available sample data (which is for 2009-10), the new poverty line (in terms of money spent on consumption) is Rs 29 per day per person in Urban areas and Rs 22 per day per person in Rural areas.

As a result, when compared to similar sample data of 2004-05, the poverty estimates have “declined by 7.3 percentage points from 37.2% in 2004-05 to 29.8% in 2009-10.” The rural poverty has declined by 8.0 percentage points from 41.8% to 33.8% and urban poverty has declined by 4.8 percentage points from 25.7% to 20.9%.

Now, as I understand, the biggest issue among the people, is about the actual poverty line number.

Some of the things that I have heard (not necessarily on TV):

“Rs 29 or Rs 32 or whatever the hell it may be – it is just too low!”

“How can you have Rs 29 or Rs 22 for daily consumption as the poverty line?”

“How can anyone in the Planning Commission, expect that you are poor at Rs 29 and not poor at Rs30?”

“How can they be so stupid as to think that Rs 30 per day is enough for living a decent life in urban areas?”

“Why don’t they make Rs 100 as the poverty line? That would be the only decent thing to do, no?”

All valid questions except they betray a complete lack of understanding about why countries have a poverty line at all. Or for that matter, what is a poverty line.

So what is poverty? And why is it so difficult to get a poverty line?

Poverty is a relative concept. [This appears straightforward but it is very crucial to understanding the problem in estimating poverty.] Let me elaborate a bit.

“Fundamentally, the concept of poverty is associated with socially perceived deprivation with respect to basic human needs,” states the Tendulkar committee report.

This means a person’s poverty depends most on how he/she is perceived by his surroundings. Of course, self-perceptions also matter, but it is how one stands “relative” to his surroundings that mainly determines how rich or poor he is.  For starters, it is a bit like saying that with Rs 100 in your hand, you are “rich” relative to the person who has just Rs 10 and “poor” relative to the person with Rs 1000. In that sense, as long as people have different incomes in a society, there will always be “poverty” since some will always be worse off than others.

This relative nature makes poverty one of the most complex issues to define and measure.

The reason why calculating a poverty line is fraught with difficulties is because a poverty line is an absolute measure of a relative concept. So, no matter what number you choose for delineating the rich from the poor, it would be arbitrary at one level.

Why do governments calculate a poverty line at all? And how is it done?

One of the main concerns for any welfare oriented government in any country, including China, is to provide relief to the poorest population. To this end, governments come up with policies like providing cheap foodgrains, or free education or some kind of unemployment benefit etc. And to know whether these schemes are working or not, government (and its economists) draws a “poverty line” and monitors whether its policies are raising the well being of its poorest people.

The idea behind a poverty line is to choose a number, partly based on some educated assumptions and some sample data, which would capture the picture of the lowest 20% – 30% of the population. This way, the government gets to know the exact standard of living of its poorest population. And as such, it can then tailor its anti-poverty programs more accurately. In a country like India, which is poor relative to, say, most western countries, such a poverty line often looks like a “starvation line.”

However, if, as many seem to suggest while in the throes of sham outrage, government was to draw a poverty line, which includes say 75% of the population, then it will only muddy the government’s policy prescription for the poorest people.

Why and How?

Imagine you are the government responsible for preparing the best pro-poor policies in a country of 5 people: A, B, C, D and E.

Now, total income in the economy is Rs 100 out of which A earns Rs 35, B earns Rs 30, C earns Rs 20 and D and E earn Rs 10 and Rs 5 respectively.

In one look, you would intuitively understand that D and E are the poor in the economy and as such, you might draw the “poverty line” at Rs 10. That way you will be able to narrow down your focus to the two most poor. The next person is C with twice the income of D and four-times the income of E.

Two things will happen if you raise the “poverty line” to Rs 20 and include C in your poverty list. One, you will have fewer resources left to be given to D & E, who are decidedly much “poorer” than C.

Secondly, when you study C’s income and consumption pattern and use them to shape the pro-poor policies, you might miss out on the real needs of D & E – the relatively poorer of the lot.

For example, C may not need subsidized food grains. Instead, C may need some help with skills, perhaps in the form of some government subsidy to allow C to pick up a skill. However, a decision to opt for subsidized skill development instead of subsidized grains may prove fatal for E, who is likely to be severely malnourished and acutely incompetent, in the short term, to earn even two square meals. Remember, governments have limited resources.

Now, with greater clarity about the concept at hand, let us get back to the more current issue of Tendulkar Committee and revision of poverty rates.

Contrary to the common perception, the committee headed by Prof Tendulkar did the country a huge favour by revising the way we estimate our poverty. The sum and substance of the new methodology, suggested by the committee in 2010, was that India is poorer than we thought.

The Tendulkar method revised the poverty line from Rs 12 in rural areas to Rs 15 and from Rs 17 in urban areas to Rs 19.  As a result, overall poverty ratio in the country is 37.2% instead of the old figure of 27.5%, thus recognizing an additional 120 million as poor.

The reason why Tendulkar’s method shows higher poverty levels is primarily that he has moved away from the traditional practice of benchmarking poverty by certain calorie consumption levels.

Instead, for the first time ever, it recognized the fact that apart from the expenditure to consume minimum calories, individuals also have to spend on two other basic requirements — healthcare and education. In the past, it was assumed that healthcare and education is already provided by the government and so the poor do not have to spend from their pocket on both.

Tendulkar Committee’s inclusion of expenditure on private healthcare and education is seen by most economists as an open acceptance that the State has failed to provide the most elementary of all the services it was supposed to.

However, the upward revisions did not mean that poverty reduction has not happened over the years because his method threw up even higher poverty estimates for the years gone by.

The Politics of Poverty Estimates

Typically, poverty lines are not estimated to put a cap on the beneficiaries of government schemes. But with limited resources, poverty estimates came to be used as ceilings for choosing beneficiaries during the 1990s. Thus instead of a universal public distribution system, we introduced the Targeted PDS.

The logic was simple. If the government did not cap its programs at some arbitrary number, its budget deficits would soar, given the high level of “poor” in the country.

This unhealthy convention of using the poverty line to identify beneficiaries or cap the number of beneficiaries has been the real bone of contention.

So on the one hand, you had the planning commission justifying literally a “starvation line”, and on the other hand, you had activists asking for a higher poverty line so that more people could benefit from the government’s anti-poverty schemes.

Things came to a head in September last year when the Planning Commission filed an affidavit in the Supreme Court quoting the Tendulkar Report to justify that the Poverty Line given by Tendulkar is “adequate” for identifying the beneficiaries for various government subsidies.

What I understand from my interactions with Prof Tendulkar and some of his colleagues in the committee, Tendulkar had meant that his method is adequate for broadly measuring the poverty line, not for identifying the beneficiaries.

However, after a long fight, in October last year, the Planning Commission finally relented and announced that poverty line would no longer be used to cap the number of beneficiaries in any government scheme.

Sadly, this decision has not yet been implemented. And with the deliberations of the national food security bill about to begin, the latest press release seems to suggest government’s efforts to bring down the expectation from the bill.

Be that as it may, the point to remember is that there is no point fretting over Rs 29 or Rs 32 as the poverty line. It is only meant to be a pointer which should be revised regularly. For example,China has revised its poverty line twice in the past two years.  The latest revision in November 2011, nearly doubled the poverty line. The move is seen as a reflection of the improving standard of living in China.

Going back to the earlier example, suppose in five years time, the economy grows fast and each individual’s income doubled. As a result, A now earns Rs 70, B earns Rs 60, C earns Rs 40, D earns Rs 20 and E earns Rs 10. Now if you still want to focus on the poorest lot, you will have to double your poverty line from Rs 10 to Rs 20.

A higher poverty number will make sense only when India’s poor are better off. If we arbitrarily increase the poverty line we would do the poor a great disservice.

So why has the Poverty Line come down from Rs 32 in 2011 to Rs 29 today?

There are two reasons for this.

One, the Tendulkar committee not just gave a new method to estimate poverty but also a new method of updating poverty line. Typically,Indiaused the CPI-AL (consumer price index for agricultural labourers) and CPI-IW (for industrial workers) for updating the poverty line. CPI-AL gave 80% weightage to food articles. But as Tendulkar found out, the poor are also increasingly spending on education and health. So his committee recommended the use of Fisher Price Index which updates the poverty line on the basis of actual consumption data. This index gives just 60% weightage to food articles.

Two, and the bigger reason is that when Planning Commission came out with the Rs 32 poverty line last year, it had done a quick, and provisional, calculation based on CPI-AL for June 2011. When it released the poverty line yesterday, it used the Fisher Price Index for prices during 2009. Between the two years, prices have gone up by roughly 14%. As a result, the data for 2009 shows a poverty line at Rs 29.

In short, this fall is just a statistical difference. It does not mean that suddenly a large number of poor have been lifted out of poverty. Neither does it mean that the poor are not slightly better off. They are. But that again is relative.

P.S This blog post has been updated with the addition of a few paragraphs since it was first published.

 

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Thanks for a very informative article is there a commonality of criteria followed by different countries to arrive at povrty lines ?Does world bank or I M F has given any guidelines in this regard ? Is it possible to compare poverty lines of different countries ? Thanks for a good article sunder g v
Well researched and argued, the operative part; "Tendulkar had meant that his method is adequate for broadly measuring the poverty line, not for identifying the beneficiaries. However, after a long fight, in October last year, the Planning Commission finally relented and announced that poverty line would no longer be used to cap the number of beneficiaries in any government scheme. Sadly, this decision has not yet been implemented 2 things: 1. How does the planning commission which if some sources are to be believed does not even have a "real existence" "relent" on matters concerning citizens particularly when they dont seem to have any limits when they want to spend on themselves - eg. the Rs 350 Mn toilet 2. Why do so called leaders who are often at best semi literate come with bombast like a Rs 5 or Rs 12 "full stomach" meal? And why do the "real leaders" not upbraid them for such nonsense. The truth I guess as we all know is something different!
Saurabh Turakhia
Isn't the poverty line supposed to indicate a sum of money to be earned for satisfying basic needs and dignified living? This point has not been addressed at all. Please explain.

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many of your arguments make no sense at all. "The idea behind a poverty line is to choose a number, partly based on some educated assumptions and some sample data, which would capture the picture of the lowest 20% – 30% of the population" - now where did u get this 20-30 percent of the population? are u saying that even if 70 percent of the population dont have enough to eat, poverty line cannot be over 30 percent? - then u say that this whole nonsense about 'relativity of poor'. one would think India's development indices are soaring by the way u put things. poor in India are better off today it seems! are you really talking about the country with an infant mortality higher than sub-saharan african countries, where malnutrition and undernourishment rates are highest in the world - "A higher poverty number will make sense only when India’s poor are better off. it doesn't matter whether prices of essentials have increased, or traditional resources like forests are grabbed from u and the poor have been transported from a village with all your resources to a city slum. poverty line musn't take any of this into account! it should not be increased as long as poor are not better off ! wow
You said"infant mortality higher than sub-saharan african countries, where malnutrition and undernourishment rates are highest in the world". I do not understand what you are trying to say. India is only lagging in "Stunting" not on all other measures of malnourishment. Second IMR is still high but not from all Sub-Sharan african countries. You can compare there 2013 IMR rates.
Very well written!!! and very interactive, as you have answered so many queries...thanks
First of all, kudos on such an article which provides such clear explanation for such a complex subject. especially your point about poverty line being an absolute indicator of a relative concept. I just wanted to ask what do you think on adopting a relative indicator???? Why not define it as people whose income are at bottom 10 % of population, this way it will be automatically updated on every survey and it will be easily verifiable I mean total number of beneficiaries equal to or less than 10% of population. Takes care of the dynamic two way highway concept of poverty. Will need China like execution though. Just a thought, Will be happy if you reply.
I'm looking for some real data that establishes whether the number of poor in India has reduced, and by how much. Can anyone provide anything definitive?
Dear Suhasini, Kindly go to the following link : http://planningcommission.nic.in/eg_poverty.htm This is as "real" as it gets on India's poverty estimates. Regards.
Sumanth Gottipati
Udit, I know it's been a long time since u made this post, yet i hope you'd reply. i agree with everything you said. i have developed a scientific theory, that by the way the society is organized shows that every single person in the society requires certain amount of social protection (we can just call it HELP!!). and for the exact reasons you just said government has to ensure that it's limited resources are used by the most needed and poverty line provides that rationale to limit the usage. But consider this: 1. the problem is income is continuous in a society. there will be 101 people earning every possible number from 0-100. and a person earning 40 is not so much worse off than one earning 50. but for reasons we've considered above the government decided to help people earning <40 (poverty line at 29). and accordingly introduced some schemes for a period of years. During this time, can we be totally sure that there will be no event impacting the people earning 50 such that now they are forced to earn only 30? (even could be an economic dip, a natural disaster etc.,) we have placed these people in rooms based on their income groups. won't people reshuffle often? when they reshuffle, if they get to sit in the upper rooms it's fine. but what if they reach the lower rooms? Can u venture on the repercussions it has on the society as a whole? the whole concept of poverty should be revisited, and i have pretty good reasons as to why. Tendulkar committee took an excellent step of considering health care and educational expenses.
Dear Sumanth, Thanks for writing in and i am glad you raised a very nuanced and important point. Yes, it is true that people go in and out of the poverty line. And it is someting that makes targetting poverty all the more difficult because most government schemes fail to recognize this dynamic aspect of poverty. But, please note that poverty line is just an estimate. It is not mapping "who" exactly is below a certain income level. It is mapping "how many" are below that income level. The actual "identification" of the poor over time could yield better results for policy makers. Apologies for the delay in responding- i wasn't keeping too well. Regards
Not intentionally i open ds blog,actually i was searching about Absolute Poverty and what will happen if we increase poverty line ,dr was confusion like others dt Is Rs.22 or Rs.29 sufficient for survival and why Govt. does not increase ds criteria, nd beutifully u clear all my doubt..i read 1 phase be4The Politics of Poverty Estimates it is more benefiacal 4 ma prepration...This post is jst for Salutation to u
This blog is all about Fact, i think the point discussed in it about the stupid politicians or government is really true.................. I guess we all should raise our hands for it. At least we will be able to change something if not the whole.........
A good piece written with clarity in simple terms. I have great regard for Prof Tendulkar, but could not agree with his methodology. When you try to identify beneficiaries based on the said poverty line, you may not even find a handful of them, because a poor man earns much more than that, yet not sufficient for a decent living. Cost of living index, independent of consumption pattern, would be a better guideline to determine the people who earn less than that as poor.
i agree to ur point Ms Jyothi, but we can not decide about who actually earns good but still considered as poor, the major concept is about our government, who allows them to have the road side stalls and homes in illegal space. I guess if its decreased then something can be improve.....
I liked ur idea that govt only wants to serve lower 20 or 30 p.c of ppl, but the minimum consideration should be food,shelter to be taken in account in accordance with current economic condition in rural and urban segments of india rather than taking 1.25 $ of world bank as base value or govt fictitious 29 rupees
Thanks a lots Mr. Udit, this article is really an eye-opener for someone who doesn't understand the science behind all this. Even I used to think the way most people do, but thanks to you, my mind is clearer now :)
Recently I have been referring to various economists related to poverty line issue. This article of yours is very well written and gives a clear understanding to even a novice who is not familiar with the jazzy eco terms. Referring to your previous article on measure poverty, your reply to Sid actually clear the air of the distinction b/w Poverty Line and the Actual Poor in India. Kudos to you…:)
Thanks for your comment, Archit. I am glad to hear that you also read the other replies and found the article useful. Be in touch. regards

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The fallacy with your argument lies in the example you have taken. Your example- total income in the economy is Rs 100 out of which A earns Rs 35, B earns Rs 30, C earns Rs 20 and D and E earn Rs 10 and Rs 5 respectively. A real example - Total income in the economy is 100 out of which A earns 50, B earns 30, C earns 5, D earns 4, E earns 4, F earns 4 and G earns 2 and H earns 1. Now putting a cap at 2 is not an ideal poverty line for an elevation plan which includes the very poor but does not provide for those who are not in any other way better off. When absolute poverty limits are a dollar a day, as announced by the world bank, keeping such a low poverty line only allows the government to show a smaller figure as the poor as in encompasses lesser number of people and allow for easier window dressing in its reports.
Dear Vishal, there is no fallacy in the argument. The example i gave was to illustrate the broader argument. But that does not mean the example is the exact replica of the Indian economy. By the way, neither is your example the exact replica. There is a rather robust middle class in India unlike your example where there is none. Perhaps we can agree that Prof Tendulkar and his team of experts knew better than both of us as to where the line should be drawn since they knew the data best. But please try to understand the larger argument i am making. The point is not to quibble over a number. The idea behind ascertaining the poverty line is to map the lowest 20% to 30% of the population. It is not to suggest that those immediately above the poverty line in India are terribly well off. I hope many of my responses in the previous comments have made that point clear. Please understand, the debate in India should, esp for the sake of the poor, move away from just quibbling over a poverty number to focussing on improving the efficiency of the poverty alleviation schemes, education and health services - and that these should not be tagged with the poverty line. I hope you understand my view better.
Great post. Grameen Foundation, where I work, has developed the PPI (Progress out of Poverty Index- a simple 10 question tool based on the NSSO data that is stastically accurate) that can be used by NGOs, development agencies and other stakeholders to reach, target, measure and track changes in poverty levels of beneficiaries, we have to really work hard to get the message across. You must visit our website http://www.progressoutofpoverty.org/india . Would be happy to work with you on an article on this innovative tool that we have developed and which many NGOs and MFIs are now using to transparently evaluate their work rather than rely on anecdotal stories of beneficiaries.
udit, i just wanted to thank u, for writing a clear and understandable commentary on the Tendulkar report. now i understand the other side. i wanted to have a basic idea about poverty line in the current scenario. i got more than that. thanks!
Dear Surabhi, Apologies for the much delayed response but great to hear that you found the blog useful. Thanks for writing in. Regards. Udit
Udit, first of all I must thank you for a very informative writeup on the otherwise confusing topic. After reading this article, I also read the one written by you in 2010, which talks about all other committees setup to measure/define poverty. Saxena committee, added the 'caste angle' to it, citing how 'Musahars' have been left out of BPL etc and you wrote and I quote "The newest survey for the identification of the poor will substantially draw from Saxena’s recommendations, though it will also include suggestions from Dreze, who disagrees with the ranking idea ..." Why then we do not see any such references to caste here in Tendulkar's suggestion? It looks like Tendulkar only considered consumption + health & education in defining poverty? Also, do you have any suggestions as to how do you think GOI should implement the various welfare scheme and the much touted NFSB ?? Lastly, in this article you mentioned towards the end "So why has the Poverty Line come down from Rs 32 in 2011 to Rs 29 today? .... In short, this fall is just a statistical difference. It does not mean that suddenly a large number of poor have been lifted out of poverty..." when actually you have yourself clarified in response to one of the comment that there has NOT been any fall, but the timing of the announcement. I just wanted to point that out, as it might be confusing to many. I was also initially confused, which got clarified only when I read all the comments above. Thanks Sid
Dear Sid, loved to hear that you actually went back to one of the other stories on poverty after reading the blog. And you hit upon a important distinction between the Poverty Line and the Identification of the Actual Poor in India. They are two separate things and i could not deal with this distinction at length and in fact, ideally public debate in India should focus more on the latter. Poverty line is an Estimate. So even when we say that 30% are poor according to poverty line, we are not aware who constitute that 30%. Does Udit fall under that category or does Sid? To "Identify" who falls under poor category for the purpose of receiving the various benefits from the government, we need actual surveys, quite like general Census, which requires us to go around the country and check for each person individually whether he/she falls under the "poor" category or not. Now in the past, the practice has been that, irrespective of the method you employ to "identify" who is poor, the government use to "cap"/"limit" the beneficiary at the Poverty Line estimate. This did not make any sense except that the government was trying to limit the fiscal burden due to its welfare programs. As my other story mentioned, India has tried its hand at different ways of "identifying" the actual poor. One such method is currently on, although not solely based on Saxena Committee recommendations. An alternative suggested by some of the top development economists is here > http://forbesindia.com/article/special/skim-off-creamy-layer-for-food-security/32460/1 . It makes a lot of sense when you take into account many of the practical difficulties we have had in identifying the poor. About the apparent fall in poverty line, let me reiterate, there hasn't been a fall in the poverty line. It is just the statistical difference when you punch in different sets of price data in the same formula. By the way, that does not mean there hasnt been a fall in poverty. Just so that you are sure: According to the data and the Tendulkar Method, poverty HAS FALLEN but poverty line HAS NOT. Hope that clarifies things. Regards.
This whole affair of drawing an imaginary line is a political farce / stunt. Points to be considered are: (1) Country as a whole is financially better off there is no denying about it. (2) But it is a matter of unequal prosperity,space between poor and rich is widening at alarming rate. (3) Government or planning commission is thinking of providing more benefits to poor (for cornering a vote bank !!!!!) so they do not want to stretch the resources very far,recent Census methodology is indicative of their ulterior motives. (4) They are falling in the trap like previous rulers since independence ,it is prosperity that has to be chased not the eternal poverty for political reason. (5) Media,Politicians,Think tanks,young leadership and people of India will have to learn,that they have to behave like a successful Nation,which is going to emerge as one of the top three economies of the world in a decades time.
Udit, this is a fascinating article and the subject is obviously ruffling a lot of feathers. I have also been critical of the Planning commissions numbers which amount to about Rs.840 pa. I am not an economist but, is there no relevance of looking at a per capita income of the same population base sitting at almost Rs.54,527 (2010-2011 estimates)? I understand that this may hold true for a lot many other nations as well. If I am not mistaken, the World Banks Poverty Line also sits at approximately 1.25$ per day. Yes, the governments objective is to diminish this gap. Yes, the government does not have unlimited resources to close this gap in immediate terms. And Yes, the numbers on BPL are more academic than anything else. But unfortunately this academic statistic will find its way into policy deciding and will eventually become the guiding light for any public distribution system. I understand your view point on how, to manage the number of beneficiaries, one has to keep the number practical. But what about the gap (and an ever increasing one) between the mean income of the nation and the so called Poverty line of the nation? not to mention, as the PCI will grow so will the inflationary impact on the poor. (India's per capita income has grown 17.3% from last year but the number may vary based on price index in consideration)
I made an error in quoting the Commissions BPL figure as Rs.840 pa.. the number should read Rs.10,440 pa.
Your term 'Absolute measure of Relative concept' is something unheard about. If ur measuring absolute, then its not relative n vice-versa. Please explain.
Nice article. My comments: Should "One of the main concerns for any welfare oriented government in any country" be "to provide relief to the poorest population" or to ensure that there are sufficient opportunities for all its citizens to earn a decent living for their family? Did not understand "Typically, poverty lines are not estimated to put a cap on the beneficiaries of government schemes. But with limited resources, poverty estimates came to be used as ceilings for choosing beneficiaries during the 1990s." I can't distinguish one from the other. Would be grateful if you could explain more clearly maybe using a illustration.
Dear Girish, as far as what should the govt do, i guess, it depends on the level of distress and poverty among the population. Giving opportunities to earn a decent living is also one of the main concerns. But that does not and should not hold the govt back from employing a different strategy for those who are extremely poor. On the difference between poverty line and identification of the poor, kindly look at my response above to Sid. i am sure you will get the difference. regards
Regarding the distinction that I was referring to I now understand that thought the poverty line need not be used as the the boundary to determine who should receive certain benefits the govt. has a tendency to blindly use it to where the draw the line is drawn to separate the beneficiaries from the non-beneficiaries. In this context I am inclined to believe that, rather then a targeted PDS, and open PDS that advocates self selection, that has been practiced in some state states like Tamil Nadu that I had learned from some of the telecasted public debates, might actually make better sense and might be efficient as well. Regarding " one of the main concern of the government" while I agree that people who need help should indeed be helped, I feel it should be done so as motivate and enable people without the necessary skills and resources to achieve the necessary skills or resources to sustain their family in a time period reasonable for the area/skill that they choose to pursue and the government should focus on ensuring that a market exists for the products/services provided by such people so that their livelihood can be sustained. So while I do agree that the extremely poor and those in need should be provided subsidized basic necessities of 'roti, kapada and makan' I feel that the endeavor should rather be to achieve sustainability, despite inflation and enable recipients of the beneficiary schemes to reach a state where in they no longer need to be the beneficiaries.
Dear Udit, It was a wonderful article which clarified on a lot of points. Said this, I am still wondering about some of the points that were considered 1. Is the consumption expenditure collected from the poor themselves? In which case, I am afraid it is wrong. Most of the poor buy their food items from PDS. So we are calculating a subsidized poverty line. I believe the outcome of policies for PDS can be based on poverty line but not vice versa. 2. I believe that the most important parameters for computing a poverty line is food, shelter, clothing, education, misc and health care. Said this, I have raised my clarification about food, coming to housing, does the consumption index base itself on any set parameter for housing? The question to be asked here is - How much rent would I, as a poor have to pay if I need a basic single bedroom pukka house. Here I would still not accept the houses constructed by the govt for the poor from its housing development schemes simply because housing development policies should apply based on the number of poor and not vice versa 3. Clothing - With respect to clothing, I would prefer this based on the least cost of the worst quality traditional wear of that state (4 sets bi-annual consumption). Also, here we need to consider the MRP rather than the subsidized Rae's. 4. Education - Outside free education, does the report consider the minimum cost of education which includes cost of books, etc? 5. Health care - Cost of health care plus the cost of medicines. Here we should be mindful again of the fact that free medicines must not be included. The original cost must be considered. Does the current computation consider it? 6. Misc - these would include electricity, kerosene, etc which are basic essentials but even here, the subsidized rates should be ignored. I feel if any poverty parameter rationalizes "free-bees" then poverty can never be removed. Also, i feel we should base calculations on parameters such as consumption index, retail prices at outlets and so on rather than the responses of the sample size (to avoid bias of responses). Can you please clarify if the above points are correct and if so, are they considered in the recent estimate considered? If you feel these points are incorrect, request you to resonate
Priyaranjan Anand Marathe
Hey Udit. Really good post. Thanks. http://iforeye.blogspot.com/2012/03/poverty-line-debate.html
If the absolute value of the poverty line is ammendable with changing time, Why can't the Govt just target the bottom portion of the society and freeze poverty line at say 15% or 20% bottom percentile population on the basis of incomes? If they link to consumptions or cost of minimum consumptions, the social eating habits come into picture. Anyway our food prices are not based on calory contents. e.g. junk food provides least calories at a much exorbitant costs, than the traditional food.
Thanks Udit! Hope this article will result in more informed and better quality deabate.
Dear Udit, A phenomenal piece of journalism, understood the concept, I only hope and pray that you will join the ilk of journalists like Sainath and explain economics to our countrymen.
Abdul Kalam Azad
Dear Udit, I enjoyed your article but couldn't get cleared the following doubts: If Poverty Line is an academic exercise and will not be linked with government's poverty alleviation programmes then why Tendulkar Committee hadn't captured the ground reality, basically the consumption capacity and inflation rate? I am confused in your ABC and E concept! If C being capable of expending more than E and D has no access to health care, education, nutrition etc yet isn't he/she a poor? It is true that state has limited resources but the way our state distributing the resource is not fair. We are witnessing many ambitious projects like UID expending huge amount. The poor Indian will get a biometric ID card but not two times meal! I think, government is skipping the responsibility. 32.3% children below 70 weeks are underweight do malnutrition in India and prime minister's Council on Nutrition Challenges, has met once during last four years. Regards
Great work ! So many misconceptions were cleared.
Dear Udit, Very nicely explained article. Hats off for such clarity. I have just one basic question. As in my knowledge and your article too states, Poverty line basically becomes a deciding factor for capping the govt. schemes/ subsidies in terms of the beneficiaries. And thats the reason for outcry among the public coz they would practically be excluded from say targeted PDS or when (and the way) it'll be launched the food security bill. Despite this, the question in my mind is that why time and again while announcing this PL, was Montek Singh out to clarify that this will not be linked to poor (or ant poor) policies? If this isn't going to be so, then is this exercise merely done to reflect that the "number of poor" in Congress's era has "declined"....coz to me showing UPA's (both 1 & 2) success seemed to be the point montek was trying to drive home
I think the government should take a leaf out of Corporate Resource Management. You could segment the population based on their needs and target them appropriately. For example, the poorest lot requires enough food to save themselves from starvation, once basic needs are met, skill development comes next so that they could prevent themselves from falling back into the clutches of poverty. It could be something like look at what needs are fulfilled for each individual (based on Maslow's hierarchy of needs) and allocate maximum resources towards those unable to meet the basic needs. However, some resources need to be allocated to other segments as well so that they could progress up. Also, resources need to be allocated to schemes which could bring maximum benefits (or higher ROI).
Dear Udit, Loved the article..makes me far more aware n informed...n loved the way ppl r raising doubts..trying to form their own ideas n giving solutions..here i second Mr. Saurabh kumar singh to some extent but nt entirely..we shud luk at what is the minimum requirement for satisfying the basic needs of food, clothing, shelter, health n eduction. I understand the fact that actual exact income is almost like impossible to compute..but while we use CPI, how about if we put a benchmark first as in what is the min amt required to sustain with all and only the basic amenities..n then mark this as the poverty line..once we know how many ppl are below this poverty line thru their expenditure on consumption..nw we put slabs (like we do for income tax, or like we say poor,middle class, upper middle n upper class) as poor-poorer-poorest and then use the limited resources accordingly..like more food and medical schemes towards 'E', more health and education schemes and benefits towards 'D', skill enhancement and entrepreneurial encouragement schemes programs for 'C'..etc. Then as we feel if there is progress or nt, we shift 'E' to 'D' or vice versa as per need felt. We can shift the basic poverty line that we fixed earlier on min consumption exp required, again as per the situation. Would like to know your views!
Your Questions: (Totally irrelevant) How can anyone in the Planning Commission, expect that you are poor at Rs 29 and not poor at Rs30?” “How can they be so stupid as to think that Rs 30 per day is enough for living a decent life in urban areas?” “Why don’t they make Rs 100 as the poverty line? That would be the only decent thing to do, no?” To scale anything you should have some kind of basic measurement. Rs 100 per person as the poverty line? If there are 5 people in a family and if they have 100 per person it means the family is having Rs 500 per day to run the family? And you call them that they are living under the poverty line having 500 rupees a day to run their life. Man, it is equivalent to 15,000 rupees per month.

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Excellent. Thank you for making this so simple for layman like myself.
I am not in any terms related with economics but still I have only one question: Why can't govt. start with poverty line of Rs. 1 per day; then uplift these people to at least Rs. 2 per day and then shift the poverty line to Rs. 2/day and so on? :)
Balaji Viswanathan
It seems circular logic to use relative terms for poverty line. If poverty line is purely relative, there will be a constant number of poor say 33%. That number is absolutely meaningless, because it stays the same regardless of whether the nation progresses or not. What we need are more absolute numbers that can track a nation's progress and tell the people if we are indeed helping people satisfy their basic needs. In common logic, poor means those who cannot have the basic human needs (food, clothing, education, shelter) satisfied. That is not relative, but absolute. We can argue whether Rs. 29 is sufficient to satisfy the human needs or not. But, you cannot just bring in relative arguments to divert the discussion.
Dear Balaji, You are mistaking the formal definition of "poor" and "poverty" with what is considered in common parlance. And my article here tries to bring out that essential difference. So it is true that as long as there is disparity in income and wealth, there will always be some people who would be poorer than others. But that does not mean that 33% figure of poverty, as you say, will become meaningless. If i told you that the bottom 33% of country A consume Rs 1000 daily and the those of country B consumer Rs 29 daily, doesn't it mean something? So even if everyone in India was to start earning double the income and consumes double the amount, it does not mean we wont have an official poverty line. Regards
Just to add to this. The urban limit of Rs 29 / person/ day for a family of 4 translates to Rs 116/- which is the same as a minimum wage in India. Assuming a sole breadwinner and family of 4 to feed, this is a somewhat accurate estimation of what constitutes real poverty. P.S. - For people who are decrying the government for being so insensitive, please pay more to the guy who does a day's job for you.
So, now we are trying to have a relative perspective over basic requirements ??? If A is getting quarter of daily minimum meal and B is getting tenth, then A has to be deprived of the gov aid since there is B, who is "more hungry" than A. Its just another way to escape from the responsibilities.
Dear Anamika, I am afraid you have not grasped the basic idea behind a poverty line. It is not meant to put a cap/ceiling on the number of beneficiaries. The government must do that separately. As of last year, the government has promised to do that, although it has not yet been implemented. By itself, the poverty line is supposed to be a way to monitor the consumption levels of the lowest 20%-30% of population. No one can deny that in India, the so-called "poverty" is abject poverty. Most would also agree that even those above our poverty line should get more support but that is a separate matter. It should not be confused with poverty estimates, which are an academic exercise. And to answer your pointed question: i hope you would agree that if you had limited food, you would first give it to the one who is starving, and ration the amount you give to the person who is much better off. In case you think there is no budget constraint for the government, then i am afraid there is no debate because then no government needs to bother about poverty lines, and people would not have to work for a living. They can just sit around, do nothing and allow the government to provide everything. Regards
@anamika if u have 1 rupee only and u have to give to d whose stomach is half filled or to E whose stomach is quarter filled whom u will give same way government doesn't have unlimited resource.
anshul srivastava
very well written article.kudos.u explained it very well without going into the math.i hope people commenting take into consideration the intention behind this article rather than the political aspect.
Well understood..appreciate ur efforts
Saurabh Kumar Singh
I have one basic question. Should poverty be decided based on the cost of living of based on what people around you are earning ? It sound very stupid to me that cost of living is not considered at all for deciding poverty line
Dear Saurabh, First of all, let me clarify that the poverty in this case is being measured by consumption expenditure, that is the amount of money one spends for consuming a designated basket of goods. In the past, poverty lines looked at only the money spent in consuming the minimum amount of calories. Tendulkar committee adopted a broader and multi-dimensional approach by including expenditure on health and education. However, on the larger point that you raise it is true that you can have different measures of poverty based on different parameters. But remember that any parameter you choose tends to bring with it some angularities. Like "income" is typically very difficult to measure especially for the poor and those living in rural areas. In these categories, many practical difficulties arise. Like often the income is very irregular. Often, the respondent will not share their true income, people are shy and suspicious. So income has generally been found to be a tough parameter to monitor. That is why we choose consumption which is more visible, easier to ask and respond to. And cost of living is used to update the poverty line. Thats where we use CPI-AL and CPI-IW and other price indices. Hope that clarifies your doubt. Here is another story that i did a couple of years back. Perhaps you'd find it engaging. http://forbesindia.com/article/real-issue/identifying-the-poor/14872/0
Saurabh Kumar Singh
Dear Udit, Thanks for replying. I think I was unable to convey my idea clearly. I am saying do not look at consumption or income of people. Look at the current inflation rate and prices of daily goods. Committee should focus on the minimum amount of money required to buy food, cloth and lowest rent/accommodation. Now any person earning say 10% (just an example) lesser than this amount will be considered below poverty line. This way the line will be set first and the poor will be counted later based on this line. I am not good in economy studies however one thing is sure that any one who fails to manage any of food, cloth and lowest rent/accommodation should be considered BPL and with Rs 29 per day its certain that a common man will fail to manage his daily living requirements.
Cost of living varies from state to state,, even city to city. One cannot keep a single benchmark if such regional disparities are taken into account.
Saurabh Kumar Singh
So let it be defined state wise. What's the harm in that ?
Hi Udit, thank you for this informative article. It is important to understand the basis for poverty line. It would be best for India if govt. declares all people below the lowest tax slab limit as poor, or insists that all people who are above the poverty line pay tax (and thus gets voted out). We have multiple measures to make things look good on paper, while ignoring realities. We need to correct that to make progress as a nation.
Dear Neel, great to hear that you liked the article. What you say makes sense intuitively but just think how many people pay direct taxes like income tax in the country. If i remember the tax base was just over 3 cr in country of well over 100 cr. The problem is that most dont pay any direct taxes. Moreover, as i implied in the story, poverty line is actually an academic exercise. It should never have been linked to finding or capping beneficiaries. How you choose the beneficiaries for a specific government should ideally be done separately. That is why "estimates" of poverty like the "poverty line" are different from "identification of the actual poor". Read the following stories for more. 1> http://forbesindia.com/article/real-issue/identifying-the-poor/14872/0 2> http://forbesindia.com/article/special/skim-off-creamy-layer-for-food-security/32460/1 Regards
Babubhai Vaghela Ahmedabad
Sir, Expenses to be incurred by Citizens on Water, Food, Clothes, Shelter, Education, Health, Justice and Entertainment should be included for calculating the amount for drawing a poverty line. On Twitter @BabubhaiVaghela
Very comprehensive to understand the basis and outcome of the new poverty lines. However, I personally wish more emphasis was laid on healthcare and education in estimating the poverty line, taking into consideration the minimum calorie requirement for urban and rural population as associate measure and speading their popularity rather than mere estimation of income in monetary terms.
Dear Jinal, One of the biggest merits of Tendulkar Committee was that it finally moved away from this minimum calorie fixation. Tendulkar, had been part of almost all the previous committee for estimating poverty but this time, as the head, he pushed for a multi-dimensional approach to include health and education expenditure. That is why the poverty line and the poverty ratio went up after his report, something that wasn't liked too much by the establishment. Read more about him here http://forbesindia.com/article/web-special/suresh-tendulkar-the-judge-amongst-economists/26362/0 Regards.
You mentioned: "Remember, governments have limited resources." Are you kidding me??? There is enough proof of 70,000 crore rupess in foriegn banks -- which is nothing but black money.... a 20,000 pipeline costing is done in crores ... People are paying over 6 crore in bribe everyday and you say gvmt has limited resources??? Thank you very much for your assistance in making another Corruption sound awesome!!!!!
Dear Vishal, i can understand that you are quite upset about corruption. But frankly, the estimation of a poverty line is an academic exercise. Poverty line numbers acquired such political colour when we started using them to limit the benefits from government's pro-poor programs. Hopefully, this will end, in line with the government's announcement last year. On a separate point, every government has finite resources. Just like you and me, they too have a budget and there are various demands competing for the limited resources. Ideally, we should not have so many poor in the country. Ideally, even our poor should have a decent lifestyle. But poverty line is not a number you dream of. It is a statistical exercise to focus on the bottom 20%-30% of our society. I am not saying that those between 30% to 50% of income/consumption range are not poor. Hope you understand. Regards
So what you are trying to say is that reducing the poverty line actually shows up govt. inability to increase poor income? But on the other hand govt. is trying to fool people saying they have reduced the number of poor from our country. Also, understanding the whole concept, the article also states that by reducing the poverty line, govt. has indirectly tried to reduce its deficits, as it will now invest less on the poor segment due to low number of people falling under that poverty line category? OR is it that the government wants to concentrate more on that segment and provide more benefits to the poorest of poor. All in all it was very informative article, but answering these queries would definitely help the junta to know if govt. has tried to use the FPI method in a good way or bad way knowing the context of such revision.
Dear Ayush, first of all, the poverty line has not been reduced. The Rs 29 for urban corresponds to 2009 data and the Rs 32 for urban refers to 2011 data. It has just been reported in the reverse order, giving the impression that it has been reduced. Secondly, i dont say that the govt reduced the poverty line to cut deficits. But yes, increasing poverty lines, when they are used to cap beneficiaries, would obviously entail more expenditure. Ideally, government should not simply use poverty lines to cap beneficiaries in India because even those above the so-called poverty line are actually very vulnerable and deserve support. Regards
Nice article very well explained and cleared all my misconceptions regarding IPL "Indian Poverty Line"..thanks Udit. I think the media should use these factors or examples to explain common man rather than misinterpreting the data.
abhishek kumar
Well explained however I only found myself seeking more explanation on the example citing incomes of A<B<C<D and E. The example is lucid but (to my understanding) it does fail to conform to the previously stated concept of poverty line which associates poverty to socially perceived deprivation with respect to basic human needs. So that makes poverty a relative concept vis-a-vis its surroundings. But the example only talks of income and no relative measure of that income with respect to surroundings. The Fisher Price Index mechanism, however, settles that controversy by consumption data.
Excellent post that throws new light on the debate on poverty. It makes two fundamental points: the government looks at people as being poor relative to the rest of the population, not conforming to a magic number; and raising the number may actually end up harming the poor rather than benefiting them. A good understanding of these nuances will vastly improve the quality of discussion in India. After reading the post, I was wondering about a couple of things. What if the government classifies two or three slabs of poverty, rather than one line? To cite the example given in the story, C may be technically above the line, but may need skill development aid, which the government may not be able to target to him, because he isn't classified into any group now? Also, What if the government specifies a proportion of population as relatively poor (say 30%) and target all its programmes to that section rather than fixing a number and grappling with an ever-changing percentage? All said and done, poverty is indeed an elusive concept.
What you are saying is correct but right now i feel govt has already a big burden and too many of problems to solve. Right now what is more important is saving people who are dying of hunger and malnutrition though what you have said is important but both compared, it is more necessary for govt to focus on saving people from D and E ...
I agree with Srinivasan. Although there may be a lot of things bothering the government, classification into slabs is an acknowledgment of the problem- an essential first step. After this government can then choose to prioritize its resources and time. A slab will also assist non government institutions such as charities to use the information for better planning and delivery of their programs. having slabs helps more than not having them. My two cents.
What you are suggesting is actually a good step for govt to ensure quick progress but we are forgetting that progress of the country is the last thing our ministers want. Division into slabs will invite widespread corruption at different levels. We already know the fate of NREGA scheme and the multi crore scams that keep happening... So every policy that our govt adopts will be crippled by corrupt ministers and middlemen be it at any level.... Well even I think there is no way to stop corruption at these levels(Lokpal ??)... So may be just divide them into slabs .. invite more corruption... at least someone will get rich...
Dear Srini, Seshadri and Gupta S, Here is another approach to whole problem. Instead of identifying the poor, simply identify the rich! Read http://forbesindia.com/article/special/skim-off-creamy-layer-for-food-security/32460/1 The reason is the same as Gupta S has mentioned. More number of categories appear to allow more corrupt practices in India. You see, when you and i talk about a problem like poverty and how it should be dealt with, despite our best intentions we may not always think through all the steps of implementations. That is why we need experts in administration, political science and economic research to collaborate in framing a simple and effective system of providing benefits to the poor. Regards
Well said Srinivasan, doing that will draw the attention of govt. as well as other NGOs towards a relatively less poor section of the society which will otherwise go unnoticed. Also, the division of funds can be done based on the relative poverty line for each slab so that a person above the 30% mark may though receive lesser help than one below it, but still would be adequate to pass him through the crisis he may be facing.
I was so ignorant of all this..Thanks for explaining!
Beautifully written. Thank you.
Very informative and superbly timed article.... Thank you Udit
 
 
Udit Misra
I have been with Forbes India since late 2008 and currently work as Assistant Editor. In the past , I have reported for Mint newspaper and produced special shows for CNN-IBN news.
In my spare time i follow sports, esp cricket, and enjoy reading/listening urdu poetry.
You can reach me at udit.misra@network18online.com and follow me on twitter @misraudit
 
 
 
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January 29, 2014 20:57 pm by sunder g v
Thanks for a very informative article is there a commonality of criteria followed by different countries to arrive at povrty lines ?Does world bank or I M F has given any guidelines in this regard ? Is it possible to compare poverty lines of different countries ? Thanks for a good article ...
July 26, 2013 14:35 pm by shekhar
Well researched and argued, the operative part; "Tendulkar had meant that his method is adequate for broadly measuring the poverty line, not for identifying the beneficiaries. However, after a long fight, in October last year, the Planning Commission finally relented and announced that poverty line ...
July 26, 2013 11:01 am by Nitin
You said"infant mortality higher than sub-saharan african countries, where malnutrition and undernourishment rates are highest in the world". I do not understand what you are trying to say. India is only lagging in "Stunting" not on all other measures of malnourishment. Second IMR is still high but...
July 24, 2013 18:12 pm by Saurabh Turakhia
Isn't the poverty line supposed to indicate a sum of money to be earned for satisfying basic needs and dignified living? This point has not been addressed at all. Please explain.
July 04, 2013 09:51 am by Right to Food Ordinance: Every Grain has Vote Written on It | Forbes India Blog
[...] foodgrains to three-fourths of rural and half the urban population as a right. Without getting into the debate about poverty line per se, this is tacit acceptance by the government that a large mass of Indian population is living [...]