Poverty – Definitions and Measures – How Indian government measures poverty? How has it evolved with time?

Poverty refers to the state of being poor. It is a relative concept, and its understanding varies with what level of living standards are considered essential in a community or a region. Absolute poverty, extreme poverty, or destitution refers to the complete lack of means necessary to meet basic personal needs such as food, clothing, and shelter.

Measures and Definitions of Poverty

Poverty Line is the income or expenditure level, below which a person is considered to be poor.

Head Count ratio

The Head Count Ratio (HCR) is the proportion of a population that lives below the poverty line. It is the most common way of measuring poverty.

Head Count Ratio can be measured with respect to a relative poverty line or an absolute poverty line. The main form of poverty line used in the OECD and the European Union countries is the relative one, based on the concept of economic distance, and is defined as a level of income usually set at 60% of the median household income.

Poverty Gap – Severity of Poverty

Poverty Gap Index is a measure of the intensity of poverty, and is expressed as a proportion of the poverty line. It measures the depth of poverty by considering how far, on average, the poor are from the poverty line. It is an improvement over the Head Count Ratio.

World Bank’s definitions of poverty

The World Bank defines poverty in absolute terms:

  • Extreme poverty: living on less than US$ 1.90 (PPP) per person per day.
  • Moderate poverty: living on less than US$ 3.10 (PPP) per person per day.

These definitions are free from geographic restrictions and is used across the world as the amount is measured in terms of Purchasing Power Parity (PPP) which ensures that the same amount of goods can be bought in any country with this amount of money – making PPP based measures a great tool for global comparison of poverty.

Multidimensional Poverty Index

Developed by UNDP and Oxford Poverty and Human Development Initiative (OPHI) in 2010, the Multidimensional Poverty Index (MPI) goes beyond the traditional income based poverty measures by capturing deprivations that individuals face with respect to education, health and living standards.

Human Development Index

Human Development Index (HDI) is a composite index of life expectancy, education and per capita income. It is published by United Nations Development Programme (UNDP) as part of the the Human Development Report. The 2018 HDI ranked India at 130th position among 189 countries. India’s HDI was calculated at 0.640, classified as medium.

Another measure of relative poverty is Gini Index or Gini Coefficient: It is a measure of the distribution of income across income percentiles in a population. A high gini index indicates greater income inequality.

Poverty in India

Difference sources give different estimates of poverty due to their different definitions and methodologies.

According to World Bank, in 2014, 58% of the population of India was living on less than $3.10 (PPP) per day (moderate poverty line).

According to UN’s Millennium Development Goals (MDG) programme, 21.9% Indians lived below $1.25 (PPP) in 2011-12.

In 2012, Indian Government stated that 22% of the population lives below its official poverty line.

Comparative Data from Asian Development Bank
Comparison of poverty in India with its neighbours, as per available data.

Evolution of official measures of poverty in India:

Since India’s independence, the methodology followed for measuring poverty has evolved. In the 1950s, poverty was estimated on the basis of each year’s harvest.

In 1970s, Dandekar and Rath devised a calorie based poverty line, which was further developed by the Planning Commission. It determined that a rural dweller required 2400 calories per day, and an urban person needed 2100 calories per day, and calculated poverty line as the expenditure required to buy this amount of calories in rural and urban areas.

The post-calorie-based methodologies are based on calculating the expenditure required to purchase a standard basket of goods, which varies for each state’s rural and urban areas. Such a methodology to measure poverty was first devised by an expert group headed by YK Alagh in 1979, which was further improvised by the expert group headed by DT Lakadwala in 1993.

In 2005, a committee headed by Suresh Tendulkar, an economist, devised a formula to assess poverty line. Based on its report, a poverty line of Rs 27 for rural India and Rs 33 for urban India was defined. According to its methodology, the estimated population below poverty line was found to be 29.6% in 2009-10 and 21.9% in 2011-12.

In 2014, in the backdrop of national outrage over the Planning Commission’s suggested poverty line of Rs 22 a day for rural areas, the C Rangarajan Committee was set up to devise a new methodology for poverty estimation. The Rangarajan Committee revised the earlier poverty line figure to Rs 32 in rural areas and Rs 47 in urban areas, and estimated population below poverty line in 2009-10 to be 38.2% and in 2011-12 to be 29.5%.

Population below poverty line byTendulkar CommitteeRangarajan Committee
2009-201029.60 %38.20 %
2011-201221.90 %29.50 %
Rural Poverty Line27 Rs32 Rs
Urban Poverty Line33 Rs47 Rs

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