Poverty, Related Concepts and Its measures

In this chapter, we will discuss Poverty and certain things around it.

What is Poverty? How the perspective about Poverty has changed over the years? Various Definitions of Poverty, The Concepts of Absolute Poverty and Relative Poverty, Measurement of Poverty – various methods and committees; Causes of Poverty; Linkage between Growth and Poverty reduction; Non-income based Poverty Dimensions.; Approach towards Poverty Alleviation Programmes, State-wise Poverty Data

1. Historical Perspective

The thinking among the policymakers has changed a lot about the poverty has changed over the last century; there was a time when Poverty was considered a necessity for economic advancement since without it who would farm the land, work in the factories and do menial jobs for the society.

They believed avoiding hunger was the necessary incentive for doing work, thus nothing explicitly was done to reduce the poverty among people; however they recognized the need for providing a degree of protection from crises, say, during the failure of monsoons or a plague attack, the rulers used to waive off or reduce the taxes, so that it wouldn’t affect the social stability.

But this support was not extended in the normal times and often it needed another calamity to occur for support to be re-established. Thus, mass poverty was taken for granted and no efforts were made to reduce the poverty permanently.

This no longer happens, now, Poverty is now seen as a social ill that can be solved through strong consistent policy action. What is debated now is the shape the policy action should take?

Some suggest that it can be done by strong Economic growth, some suggest building capability of the poor to overcome Poverty, and some suggest income augmenting methods, more about that later. Let us first go through the basics of the concept of Poverty.

2. Definitions of Poverty

In most simplistic terms, the poverty can be defined as a state where the person is not earning enough money to meet the most basic needs of Food, Clothing, and Shelter – “Roti, Kapda Aur Makaan.”

Some thinkers have expanded the meaning of poverty to include other dimensions as well. They call Poverty a multifaceted concept, which may include social, economic, cultural and political elements and differentiate

  • The Social elements would include – equality of status and opportunity, access to health care and education, affordable housing etc.
  • The economic elements would be income measure, right to work and subsidies for essential items such as food grains.
  • The political dimension includes – freedom of thought, expression, and association.
  • The cultural dimension would include- the right to maintain one’s cultural identity and be involved in a community’s cultural life

2.1 Concepts in Poverty:

There are two concepts of poverty in economics. They are absolute poverty and relative poverty.

2.1.1 Absolute Poverty

People are said to be in absolute poverty if their earnings are insufficient to obtain the minimum necessities or to meet basic personal needs such as food, clothing, and shelter for the maintenance of physical efficiency. It basically indicates a deprivation of some sort resulting in hunger and starvation. Such minimum necessities are usually measured in terms of minimum nutritional requirements.

Absolute poverty is also called as extreme poverty or destitution.

The concept of absolute poverty is not concerned with the broader quality of life issues or with the overall level of inequality in society. The concept, therefore, fails to recognize that individuals have important social and cultural needs. This, and similar criticisms led to the development of the concept of relative poverty.

2.1.2 Relative Poverty

The people of low-income groups are relatively poor as compared to the people whose incomes are high. Here poverty is viewed in terms of inequality between the poorest group and the rest of the community. It is to be noted that relative poverty cannot be eradicated without transfers from the rich to the poor. At the same time, the relatively poor may be living above the minimum subsistence level.

The expression of relative poverty indicates income inequality.

3. Working Definitions of Poverty – Poverty Lines

These definitions mentioned above tell us what poverty is but they are not much useful in assessing how many people are poor and the level of public action required for eliminating the Poverty due to the subjective nature of the interpretation of these terms. So, different countries and institutions define poverty in absolute terms to arrive at the estimates of people reeling in poverty. So countries typically define national poverty lines.

The poverty line is the amount of money needed for a person to meet his basic needs. It is defined as the money value of the goods and services needed to provide basic welfare to an individual. The Poverty lines differ from one country to another, depending upon the idea of poverty.

3.1 Definition of World Bank:

The World Bank defines extreme poverty as living on less than US$ 1.90 per day> (PPP), and moderate poverty as less than $3.10 a day.

3.2 Definition in India

The current definition of the Poverty line in India is based on the methodology given by the Tendulkar Committee in 2009; it defines poverty, not in terms of annual income but in terms of consumption or spending per individual over a certain period for a basket of essential goods. Further, this methodology sets different poverty lines for rural and urban areas.

We will discuss the methodology in detail in the coming sections.

4. Non-Income Dimensions of Poverty

As discussed earlier, Poverty encompasses multiple and diverse dimensions. Income is a relevant and key dimension—the means and resources to access necessary goods and services for meeting minimum basic needs but excludes expenditures on education and health which are important for living a good life. Hence non-income measures of poverty are important

Health, nutrition, education, physical security, voice, justice, and capacity and opportunity to improve one‘s life are also essential dimensions of poverty and wellbeing. This inherent multidimensionality is perhaps best conceptualized by Amartya Sen‘s approach to poverty as capability-deprivation—being deprived of those capabilities and freedoms of value for a functional life. Thus, understanding the multiple dimensions of poverty and subjective perceptions about poverty must take into account non-monetary aspects of overall welfare and living standards.

Later, at the end of this chapter, when we discuss the data related to Poverty, we shall also discuss some important data on the non-income dimensions of poverty such as

  • Health indicators – stunting, wasting and malnutrition.
  • Education Indicators – Enrolment, Absenteeism, Literacy etc.
  • The World Bank’s “Voices 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 include- Discrimination, lack of security, living in secluded locations, problems in social relationships, abuse by those in power etc.

5. Measurement of Poverty in India

Historically, the measurement of poverty in India starts with Dadabhai Naoroji in the 19th century when he wrote the book “Poverty and Un-British rule in India”,

His careful study led him to conclude subsistence-based poverty line in 1867-68 prices as Rs 16 and Rs 35 per capita per year in various regions of India, though it is important to note that he never used the word “poverty line”. It was based on the cost of a subsistence diet consisting of ‘rice or flour, dhal, mutton, vegetables, ghee, vegetable oil and salt’. At that time, per capita income of England was at Rs. 450.

In 1938, Congress president Subhash Chandra Bose set up the National Planning Committee (NPC) with Jawaharlal Nehru as chairman and Professor K. T. Shah as secretary for the purpose of drawing up an economic plan with the fundamental aim to ensure an adequate standard of living for the masses.  The Committee regarded the irreducible minimum income between Rs. 15 to Rs. 25 per capita per month at Pre-war prices. However, this was also not tagged something as a poverty line of the country.

The measurement of Poverty in India was taken up by the Planning Commission in the initial years, and in the last few decades, the measurement of Poverty has become controversial and contentious due to the following reasons:

  • The measurement of Poverty has fiscal ramifications –If the poverty line low, it may leave out many needed people who are just marginally above the poverty line and if kept high, it would be bad for the fiscal health of the government.
  • The debate on the extent of poverty in India has also been a matter of global interest in the recent years because the levels of poverty in India and China have come to exert significant influence over the trends in world poverty itself.

5.1 Various estimates of Poverty in India

5.1.1 Working Group of Planning Commission, 1962

The working group of the Planning Commission in 1962 arrived at a national minimum for each household of five persons at Rs 100 per month for Rural and Rs. 125 for Urban at 1960-61 prices. That is of Rs 20 and Rs 25 per person per year respectively. It excluded the health and education expenditures as these were supposed to be provided by the government.

Thus, this came to be the first poverty line for India and was used for different schemes in the 1960s and through 1970s at different levels. But there was an intense criticism of these numbers for being low, so Government of India appointed another task force under the chairmanship of Y.K. Alagh to update the poverty line.

5.1.2 Y K Alagh Committee, 1979

Till this committee, the approach to estimate poverty was traditional i.e. lack of income.  It was later decided to measure poverty in terms of how much people eat i.e., the calories consumed by the people became the basis for calculation of Poverty. The committee based on the recommendation of Nutrition Expert Group came to a conclusion that the people consuming less than 2100 calories in the urban areas or less than 2400 calories in the rural areas are poor. The logic behind the discrimination between rural and urban areas was that the rural people do more physical work.

Now, these calorie requirements were given ‘monetary value’ determined by ascertaining ‘quantity’ of consumption and ‘prices/value’ of that quantity, the data for arriving at the monetary value was provided by NSSO survey. They arrived at the consumer expenditure (food and non-food) of

  • 49.09 per capita per month was associated with a calorie intake of 2400 per capita per day in rural areas and
  • 56.64 per capita per month with a calorie intake of 2100 per day in urban areas.

Even this committee excluded the health and education expenditures as these were supposed to be provided by the government.

This ‘Monthly Per Capita Expenditure’ was termed as the poverty line. This poverty line was used for upcoming years adjusting it to the inflation.

5.1.3 Lakdawala Committee, 1993

The committee retained the assumptions of the Alagh Committee about the 2400 and 2100 calories worth of consumption in rural and urban areas respectively in addition to clothing and shelter for the calculation of the poverty line. However, the Lakdawala Committee differed from Alagh Committee in terms of the following points:

  • It came up with ‘State specific Poverty Line’ with poverty line basket of the base year 1973-74 instead of a single All-India Poverty line and ‘poverty ratios’ of states were aggregated to ‘All India poverty ratio’ based on ‘population-based weighted average of these states.
  • And the ‘Rural and Urban Poverty lines of states’ were updated by taking into account
    1. ’Consumer Price Index- Agricultural Labor’ for ‘Rural state-specific poverty line ‘ and
    2. ’CPI- Industrial workers’ for ‘Urban state-specific poverty line’.

After the adoption of this committee’s formula, the number of people below the poverty line which was only 16 percent of the population in 1993-94 became 36.3 percent.

Till as recently as 2011, the official poverty lines were based entirely on the estimates of the Lakdawala Committee of 1993.

5.1.4 Suresh Tendulkar Committee, 2005

The committee was constituted by the Planning Commission in 2005 to address the following three 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.
  • There were issues with the adjustment of prices for inflation, both spatially (across regions) and temporally (across time); and
  • The poverty lines assumed that health and education would be provided by the State and formulated poverty lines accordingly.

It submitted its report in the year 2009 and it recommended four major changes:

  • a shift away from calorie consumption based poverty estimation;
  • a uniform poverty line basket (PLB) across rural and urban India;
  • a change in the price adjustment procedure to correct spatial and temporal issues with price adjustment; and
  • The inclusion of private expenditure on health and education while estimating poverty.

The Committee arrived at new poverty lines for rural and urban areas of each state. It concluded that the all India poverty line was Rs 446.68 per capita per month in rural areas and Rs 578.80 per capita per month in urban areas in 2004-05.

The data was updated adjusting for changes in prices and patterns of consumption, using the consumption basket of people close to the poverty line instead of using indices derived from the CPI-AL for rural areas and CPI-IW for urban areas as was done earlier.

When the committee recommendations were adopted in the year 2011, the poverty line was Rs 816 per capita per month for rural areas (Rs. 27/day) and Rs. 1000 (Rs 33/day) for urban areas. These expenditures as per expert group were sufficient to cover food and non-food expenditure, including that on health and education.

This committee’s recommendations too sparked off a furious row, as these numbers were considered unrealistic and extremely low.

The government under pressure appointed another committee under Prime Minister’s Economic Advisory Council Chairman C. Rangarajan to review the poverty estimation methodology.

5.1.5 Rangarajan Committee, 2012

In 2012, the Planning Commission constituted a new expert panel with the following key objectives:

  • to provide an alternate method to estimate poverty levels and examine whether poverty lines should be fixed solely in terms of a consumption basket or if other criteria are also relevant;
  • 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.

The Committee submitted its report in 2014 and gave ‘per capita monthly expenditure’ as Rs. 972 in rural areas (Rs 32/day) and Rs. 1407 (Rs 47 /day) in urban areas as the poverty line.

  • It preferred to use ‘Monthly expenditure of Household of five’ for the poverty line purpose which came out to be Rs 4860 in rural areas and Rs. 7035 in urban areas. It argued that considering the expenditure of household is more appropriate than that of individuals.
  • It reverted to an old system of separate poverty line baskets for Rural and urban areas, which was unified by Tendulkar group.

With estimates of Rangarajan committee, Poverty stood at around 30% in 2011-12. The number of poor in India was estimated at 36.3 crores in 2011-12. This 2014 report also did not placate the critics and was turned down by the NDA government.

Currently, the numbers given by the Tendulkar Committee are given out for poverty estimates. It is often said that Tendulkar Poverty line is equivalent to World Bank’s $1 or $1.25 in PPP terms. This purely incidental and poverty line calculated by Tendulkar had nothing to do with World Bank methodologies. But government often defended poverty line claiming that it is as per global standards. The World Bank has revised its Poverty line to $1.90 now.

5.1.6 Latest Committee on Poverty estimates under Arvind Panagariya, 2015

To define the poverty line, The NDA Government had constituted a 14-member task force under NITI Aayog’s vice-chairman Arvind Panagariya to arrive at revised and realistic poverty line in 2015.

The task force also failed to reach a consensus on the poverty line. In September 2016, it suggested to the government that another panel of specialists should be asked to do this job {if defining poverty line}. Informally, this committee supported the poverty line as suggested by Tendulkar Committee. Thus, the debate on the poverty estimates still remains unsettled.

6. Incidence of Poverty in different States

 

60% of the poor reside in the states of Bihar, Jharkhand, Odisha, Madhya Pradesh, Chattisgarh, Uttar Pradesh and Uttarakhand. The reason for these states to be in the category of the poorest state is because 85% of tribal people live there. Also, most of these regions are either flood-prone or suffer from calamities. These conditions hamper agriculture to a great extent, on which the household income of these people depends.

We have discussed so far the methodologies and issues concerned with the calculation of the poverty measures in India; let us now understand what causes or perpetuates the poverty?

7. Causes of Poverty

Poverty is a socio-economic evil, for the eradication of which requires well-planned and concerted efforts. Therefore, though the causes of poverty may be otherwise obvious, we need to do a thorough diagnosis of what perpetuates Poverty.

India inherited Poverty from the years of Colonial rule which kept us under Economic Subjugation for as long as 200 years and India became independent with more than 50% of the population of India living below poverty line, which is one of the reasons for still persisting higher levels of poverty. However, despite 70 years of Independence India still has a lot of poverty.

We can categorize the causes for poverty into a number of categories Economic, Social, Geographical, Environmental etc.

7.1 Economic causes of poverty in India

7.1.1 Subdued Economic Growth

For years post-independence had a slow economic growth due to bad governmental policies and caused and perpetuated widespread poverty. Stagnant or slow-paced economic development leads to poverty.

7.1.2 Skewed Employment ratio

The population to jobs ratio in India is unbalanced, as we skipped the phase of growth led by the manufacturing sector post-reforms which could have provided employment to vast sections of the population. The services sector couldn’t provide employment to as many people as manufacturing could have given. The unemployment in masses is a leading cause of poverty.

7.1.3 Lack of Agricultural Development

No country can be economically balanced without the aid of a strong agricultural backbone. Despite Agriculture being the majority occupation in India, the productivity levels are still low and at subsistence levels for various crops with exception of cereal foods of wheat and rice, due to lack of development in the sector.

7.1.4 Inadequate industrialization in certain areas

Industries provide employment opportunities to the locals of the place. The concentration of industries in any few states has deprived areas and face acute poverty.

7.1.5 Inequality in distribution of resources

India has an uneven concentration of wealth and resources, which leads to an extreme situation wherein people are either neo-rich or below the poverty line. This unbalance is harmful to our nation`s overall economy and development.

According to a survey conducted by Oxfam, the richest 1% in India cornered 73% of the wealth generated in the country last year.

7.2 Social causes of Poverty

7.2.1 Social evils like Untouchability and caste system

Untouchability and caste system limits people of certain lower castes from their democratic rights and does not allow them to venture outside their caste to seek employment and leads to deprivation of resources to those people. They are shunned from the society and pushed towards poverty. There are not allowed to venture into the general employment opportunities and are forced to do meager jobs thus perpetuating poverty in those groups of people.

7.2.2 Widespread ignorance and illiteracy

High level of illiteracy in India is another major cause of poverty. Uneducated people are unable to tap their complete potential and hence their earning sources get limited. They are unaware of all the possible opportunities any modern society has to offer and spend their lives in ignorance. They are unable to compete with the educated counter-parts of the competitive society and hence remain in poverty.

7.2.3 Overpopulation

Overpopulation in any place increases competition in the employment sector and puts a pressure on the scarce resources. As a result, poverty creeps in, in any overpopulated place since competition increases and opportunities decrease.

7.3 Geographical and Environmental Factors

 

7.3.1 Selective fertility of land

The fertility of the soil is not the same in every region of a country and varies from place to place. While the fertile areas have blessed agricultural produce, the unfertile lands are pushed towards poverty naturally.

7.3.2 Flooding of lands

Natural calamities like floods can completely destroy farmlands and adversely affect the agricultural produce and are one of the reasons for high incidence for poverty in pockets of Eastern India at places like Assam, West Bengal, and Bihar.

7.3.3 Long spells of drought

Another climatic adversity that causes poverty is drought. Long spells of drought harm farmlands and the overall agricultural output. Droughts are a permanent cause of poverty in some of the regions of India such as Rajasthan and Karnataka.

8. Approach towards Poverty Alleviation in India

Over the years Government of India has carried out numerous Poverty alleviation programmes right from the First Five Year Plan to date. We can find in all policy documents of the government that emphasis has been laid on poverty alleviation but the approach and schemes for the elimination of poverty have changed plan after plan.

The approach can be divided into three phases

8.1 Phase 1: Trickle-down theory

The first one is the growth-oriented approach which assumes that the benefits of the rapid g— rapid growth in GDP per capita income — would spread to all sections of society and will trickle down to the poor sections also. This has been described by the economists as the Trickle Down theory. It was the major focus of planning in the 1950s and early 1960s.  The assumption was that the industrial development and transformation of agriculture through the green revolution in select regions would benefit the underdeveloped regions and the more backward sections of the community.

But the approach backfired; Green Revolution and limited industrialization exacerbated the disparities regionally and between large and small farmers.

8.2 Phase 2: Direct Anti-Poverty programmes

With the failure of Trickle-down economics, the government of India looked at achieving through specific poverty alleviation programmes. The assumption was that incomes and employment for the poor could be raised through the creation of additional assets and by means of work generation.

These programmes can be classified as –

1) Wage employment programmes 2) Self-employment programmes 3) Food security programmes 4) Social security programmes

Some of the noted programmes are Food for Work, Rural Employment Generation Programme (REGP), Prime Minister’s Rozgar Yojana (PMRY) and Swarna Jayanti Shahari Rozgar Yojana (SJSRY), etc.

8.3 Phase 3: Provision of minimum basic amenities

India was among the pioneers in the world to envisage that through public expenditure on social consumption needs — provision of food grains at subsidized rates, health, water supply and sanitation—people’s living standard could be improved. Programmes under this approach are expected to supplement the consumption of the poor, create employment opportunities and bring about improvements in health and education.

Three major programmes that aim at improving the food and nutritional status of the poor are Public Distribution System, Integrated Child Development Scheme, and Midday Meal Scheme.

Certain other programmes such as Pradhan Mantri Gram Sadak Yojana, Various Housing Programmes (Awas Yojana) are also attempts in the same direction. It may be essential to briefly state that India has achieved satisfactory progress in many aspects.

8.4 Phase 4: Integrated Rights-based Approach

The last decade can be called as Integrated or Comprehensive Approach towards the poverty alleviation with enactment of National Food Security Mission, Mahatma Gandhi Rural Employment Guarantee Act, Sarva Shiksha Abhiyan, National Social Assistance Programme (NSAP), Indira Awas Yojana (IAY), National Rural Drinking Water Programme, Swachh Bharat Abhiyan (SBA), and National Urban Livelihood Mission with all the programmes being implemented in mission mode and a single objective of Poverty elimination.

9. Challenges to eliminating extreme poverty

What are the principal challenges in tackling poverty? Why despite huge focus by the government, the progress has been slow?

9.1 Inequality

  • Among the list of threats one can identify to attaining that goal, inequality stands out as a major concern today. Rising inequality can mean that growth largely by-passes poor people.
  • The inequalities can be multi-faceted:
    • Inequalities in access to good quality schooling and health care
    • Inequalities in access to land (including insecurity of rights over land) also remain an impediment to pro-poor growth.
    • Gender inequalities

9.2 Implementation

The pro-poor policies call for better quality public institutions and services that are inclusive of the needs of poor people. We have the best of programs on paper but fail miserably on delivery and implementation.

For example, in the PDS, as much as half of the grains procured by the government for the poor are siphoned off by middlemen before reaching their intended beneficiaries. Transparency and accountability have been missing from our public policies.

9.3 Low Revenue Base

Improving the tax systems in the country to expand the revenue for the antipoverty policies must also be a high priority. GST has been a right step in this direction, now we need to rationalize the rates of GST and increase the direct taxation base.

The bigger challenges ahead are in assuring the political will and administrative capabilities to implement and enforce sound anti-poverty policies, and in adapting them to differing circumstances and evolving knowledge about their efficacy.

 

10. Some Important Measures of Poverty

10.1. Human Poverty Index

The Human Poverty Index (HPI) was an indication of the standard of living in a country, developed by the United Nations (UN) to complement the Human Development Index (HDI) and was first reported as part of the Human Development Report in 1997. It was considered to better reflect the extent of deprivation in developed countries compared to the HDI.

In 2010 it was supplanted by the UN’s Multidimensional Poverty Index.

10.2. Multidimensional Poverty Index

 

  • Multidimensional Poverty Index (MPI) was developed in 2010 by the Oxford Poverty & Human Development Initiative (OPHI) and the United Nations Development Programme and uses different factors to determine poverty beyond income-based lists.
  • It replaced the previous Human Poverty Index.
  • The global MPI is released annually by OPHI and the results published on its website.

10.3. Poverty gap index

  • The poverty gap index is a measure of the intensity of poverty. It is defined as the average poverty gap in the population as a proportion of the poverty line
  • The poverty gap index is an improvement over the poverty measure headcount ratio which simply counts all the people below a poverty line, in a given population, and considers them equally poor.
  • Poverty gap index estimates the depth of poverty by considering how far, on the average, the poor are from that poverty line.

10.4. Global Hunger Index

The Global Hunger Index (GHI) is designed to comprehensively measure and track hunger globally and by country and region. Hunger is one of the manifestations of Poverty.

The Index was adopted and further developed by the Washington based International Food Policy Research Institute (IFPRI), and was first published in 2006 with the Welthungerhilfe, a German non-profit organization. Since 2007, the Irish NGO Concern Worldwide joined the group as co-publisher.

In the report of 2017, India is at the 100th position among 119 countries.

The report and the rankings are based on the percentage of the under-nourished population and three health indicators for children aged less than five years: wasting (low weight for height); stunting (low height for age) and mortality. These are manifestations of Poverty.

 

 

 

 

 

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