Poverty Line in India

India is home to over one-third of poor people in the world. If we add the poor of Pakistan and Bangladesh into it, we find that almost half of world poverty exists just these three nations. The next big concentration of poverty is in the sub-Saharan Africa. However, estimation of poverty has been a contentious issue in India. Historically, first estimation of a poverty line was done by Dadabhai Naoroji in 19th century, though he himself did not use the word “poverty line”.

Dadabhai Naoroji

The history of poverty estimation in India goes back to 19th century when Dadabhai Naoroji’s efforts and careful study led him to conclude subsistence based poverty line at 1867-68 prices, though 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’.

According to him, subsistence was what is necessary for the bare wants of a human being, to keep him in ordinary good health and decency. His studies included the scale of diet and he came to a conclusion on the subsistence costs based poverty line that varied from Rs.16 to Rs.35 per capita per year in various regions of India. At that time, per capita income of England was at Rs. 450.  However, since necessities in India cost only about one-third as compared to England at that time, the real difference in terms of purchasing power parity was not fifteen times but only five times.

National Planning Committee

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.

First Planning Commission working group

The concept of the poverty line was first introduced by a working group of the Planning Commission in 1962 and subsequently expanded in 1979 by a task force. The 1962 working group recommended that the national minimum for each household of five persons should be not less than Rs 100 per month for rural and Rs. 125 for urban at 1960-61 prices. These estimates excluded the expenditure on health and education, which both were expected to be provided by the state.

Y K Alagh Committee

Till 1979, the approach to estimate poverty was traditional i.e. lack of income.  It was later decided to measure poverty precisely as starvation i.e. in terms of how much people eat. This approach was first of all adopted by the YK Alagh Committee’s recommendation in 1979 whereby, 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. Moreover, an implicit assumption was that the states would take care of the health and education of the people. Thus, YK Alagh eventually defined the first poverty line in India.

Lakdawala Formula

Till as recently as 2011, the official poverty lines were based entirely on the recommendations of the Lakdawala Committee of 1993. This poverty line was set such that anyone above them would be able to afford 2400 and 2100 calories worth of consumption in rural and urban areas respectively in addition to clothing and shelter. These calorie consumptions were derived from YK Alagh committee only.

According to the Lakdawala Committee, a poor is one who cannot meet these average energy requirements. However, Lakdawala formula was different in the following respects in comparison to the previous models:

• In the earlier estimates, both health and education were excluded because they were expected to be provided by the states.
• This committee defined poverty line on the basis of household per capita consumption expenditure. The committee used CPI-IL (Consumer Price Index for Industrial Laborers) and CPI- AL (Consumer Price Index for Agricultural Laborers) for estimation of the poverty line.
• The method of calculating poverty included first estimating the per capita household expenditure at which the average energy norm is met, and then, with that expenditure as the poverty line, defining as poor as all persons who live in households with per capita expenditures below the estimated value.

The fallout of the Lakdawala formula was that number of people below the poverty line got almost double. The number of people below the poverty line was 16 per cent of the population in 1993-94. Under the Lakdawala calculation, it became 36.3 per cent.

Suresh Tendulkar Committee

In 2005, Suresh Tendulkar committee was constituted by the Planning Commission. The current estimations of poverty are based upon the recommendations of this committee. This committee recommended to shift away from the calorie based model and made the poverty line somewhat broad based by considering monthly spending on education, health, electricity and transport also.

• It strongly recommended target nutritional outcomes i.e. instead of calories; intake nutrition support should be counted.
• It suggested that a uniform Poverty Basket Line be used for rural and urban region.
• It recommended a change in the way prices are adjusted and demanded for an explicit provision in the Poverty Basket Line to account for private expenditure in health and education.
• Tendulkar adopted the cost of living as the basis for identifying poverty.

The  Tendulkar panel stipulated a benchmark daily per capita expenditure of Rs. 27 and Rs. 33 in rural and urban areas, respectively, and arrived at a cut-off of about 22% of the population below poverty line. However, this amount was such low that it immediately faced a backlash from all section of media and society. Since the numbers were unrealistic and too low, the government appointed another committee under Prime Minister’s Economic Advisory Council Chairman C. Rangarajan to review the poverty estimation methodology. Brushing aside the Tendulkar Committee. Rangarajan committee raised these limits to Rs. 32 and Rs. 47, respectively, and worked out poverty line at close to 30%.  With estimates of Rangarajan committee, Poverty stood at around 30% in 2011-12. The number of poor in India was estimated at 36.3 crore in 2011-12.

Current Status: Arvind Panagariya Task Force

The discussion about Lakdawala Formula, Suresh Tendulkar Committee and Rangarajan Committee make it clear that  defining a poverty line in India has been a controversial issue since 1970s. The latest poverty line defined was by Rangarajan Formula. However, this report also did not assuage the critics. The new NDA Government turned down this report also.

To define the poverty line, The NDA Government had constituted a 14-member task force under NITI Aayog’s vice-chairman Arvind Panagariya to come out with recommendations for a realistic poverty line. After one and half years work, this task force also failed to reach a consensus on 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.

Why defining poverty line is a controversial issue?

Most of the governments have mothballed the reports of commmittees and panels because this issue is not only politically sensitive but also has deeper fiscal ramifications. If the poverty threshhold is high, it may leave out many needed people; while if it is low, then it would be bad for fiscal health of the government. Third, there is a lack of consensus among states too. We note that some states such as Odisha and West Bengal supported the Tendulkar Poverty Line while others such as Delhi, Jharkhand, Mizoram etc. supported Rangrajan Line. Thus, no one, including NITI aayog wants to bell the cat when it comes to count number of poor in the country.

How poverty is measured in other countries?

In most of European countries, a family with net income of less than 60% of a median net disposable income is counted as poor. In United States, poverty line represents the basic cost of food for a family multiplied by three. A family is counted as poor if its pre-tax income is below this threshold.