Thursday, December 1, 2011

How is Poverty Line (& families Below Poverty Line) determined in India

A lot of heat has been raised on the definition of "poverty line" and who is poor ever since the Planning Commission told the Supreme Court in September 2011 that anyone spending more than Rs 965 per month in urban India and Rs 781 in rural India will be deemed not to be poor. Updating the poverty line cut-off figures, the commission said those spending in excess of Rs 32 a day in urban areas or Rs 26 a day in villages will no longer be eligible to draw benefits of central and state government welfare schemes meant for those living below the poverty line.
Lets understand what's poverty line and how is it determined in India.
Poverty Line Basket (PLB)
It is a socially acceptable minimal basket of inter-dependent basic human needs that are satisfied through the market purchases. The all India rural and urban PLB are derived separately for urban and rural areas based on per capita calorie norms of 2400 (rural) & 2100 (urban). It is specified in terms of required per capita total household consumer expenditure to achieve this level of calorie intake.
The existing poverty line is defined in terms of Per Capita Total Consumer Expenditure (PCTCE) at 73-74 prices, adjusted over time for changes in prices keeping the original PLB constant.
While poverty estimates and Poverty line is used extensively by various Government Departments especially those in the welfare sector, the two departments having most relevance are Department of Food and Public Distribution (DFPD)- to determine the Below Poverty Line (BPL) and Above Poverty Line (APL) families for the purpose of subsidized Public Distribution system and Ministry of Rural Development (MoRD) to determine the coverage of population under various schemes. It is also the MoRD which actually takes up the job of devising methodology for identification of families once the poverty line has been defined by the Planning Commission.
The DFPD follows poverty estimates based on 93-94 (50th NSS survey) projected on March 2000 population and the number of families thus covered under the PDS system is:
Planning Commission has revised the poverty line in 2004-05 (based on 61st NSS survey). The poverty line as per 61st round is 27.5% (all India), 28.3% (rural) and 25.7% (urban).
Issues with existing Poverty estimates
• Consumption pattern underlying rural & urban PLBs has remained tied to 73-74 consumption basket & are outdated. For instance
– Share of food in consumption basket has reduced from 80% in 1973-74 to about 65% in 2004-05
– Rural food consumption pattern is shifting gradually from cereal based to non-cereal food items. (Voluntary shift in dietary habits; (though this point has been debated by some experts);
– Expenditure on education is not taken into consideration. Number of rural school age children has increased from 40% in 73-74 to 75% in rural poverty line PCTE class in 2004-05
– Private Household Expenditure on health & education has increased manifold & is not considered in PLB of 73-74
• Further, it follows a Uniform Reference Period (URP) of 30 days based on Consumer Price Index for Agriculture Labour (CPI AL) for rural and CPI for Industrial Workers (CPI IW) for urban areas.
• CPIAL understates the price rise in rural areas thus lowering the rural poverty artificially;
• Moreover its based on calorie intake norms. There is an overwhelming evidence of downward shift in calorie Engel curves overtime. Moreover, calorie consumption intake based on 30 days recall in NSS doesn’t correlate with nutritious outcomes.
Tendulkar Committee Report
An Expert Group headed by Prof Tendulkar was appointed by the Planning Commission in December 2005 to review the methodology for estimation of poverty. The terms of reference for the committee were:
1. Examine issues relating to comparability of the 50th, 55th & 61st round;
2. To review alternative conceptualization of poverty;
3. To recommend any changes in the existing procedures of official estimates of poverty.
The Expert Group has submitted its report in November 2009. The Expert Group recommends that the purchasing power represented by the mixed Reference Period (MRP) equivalent per capita total expenditure (PCTE) underlying the all India urban HCR of 25.7% is to be taken as the new reference PLB for measuring poverty & be made available to both the rural & urban population in all the states after correcting for urban rural differentials.
Based on the shortcomings of the existing poverty estimates, the Committee has suggested the following changes:
Mixed Reference Period
• The new MRP is based on 61st NSS captures 30 days and 365 days recall
• A 365 days recall captures better than 30 days recall the per capita expenditure on low frequency items especially of those on lower end of PCTE.
• MRP captures 23 indices based on
CES on 176 items aggregated into 15 commodity group indices- cereals, pulses, milk, oil, egg-fish-meat, vegetables, fresh fruits, dry fruits, sugar, salt-spices, other food, beverages & tobacco, fuel- light, clothing & footwear
Health (institutional & non institutional);
Other 5 items groups-entertainment, personal care items, miscellaneous goods, miscellaneous services and durables accounting for 10% of urban PLB excluding rent and conveyance.
• It is a move away from calorie intake norms
• New recommended PLB incorporates latest available data on goods & services based on observed pattern of consumer behavior in 2004-05

• It corresponds to 1776 calorie for urban and 1999 calories for rural and is close to 1770 calorie norms of FAO for India.
The comparative poverty estimates scenario is as follows:

(all figures are in % terms & to be read as % of population below Poverty Line)

The actual number of BPL coverage will thus be determined depending upon the population base considered. The best would be to consider the Census 2011 population.

The Planning commission is yet to come out with the revised poverty line and the number of families falling within the BPL category. There also are debates, especially from States like Bihar whether poverty line can be defined in this 'top down' manner and should it not be based on the actual survey of the families. The debate continues and gets more charged as the "Right to Food bill" is being laid in the house of Parliament and general elections are due in 2014!
The Tendulkar Committee had estimated the poverty lines for 2004-05 at a per capita per month consumption expenditure of Rs 578.80 in urban areas and Rs 446.68 in rural areas. In an affidavit filed in the apex court in September 2011, the Plan panel updated these in September 2011 to Rs 965 and Rs 781 for urban and rural areas, respectively. And there has been lot of public outcry since then mainly on account of such an estimate being perceived too low in absolute value terms. While the Tendulkar-led expert group did take into account a few indicators without really restricting itself to calorific value, there has been wide-ranging opinion that a more objective view was needed. Moreover, the estimates are not in sync with the identification of families that is separately undertaken by the ministries of rural development and urban development.

In a reply to Parliament in the ongoing session, it was informed that a new committee of experts will be set up soon to decide on a comprehensive criterion for identifying the BPL families. The committee’s quest will be to arrive at “the most credible methodology to estimate poverty” in consultation with states and other stakeholders.
And so the quest continues......