1. Poverty in India: Concepts, Measurement and Trends
Manoj Panda
Centre for Economic and Social Studies (CESS),
Hyderabad

2. Coverage Introduction Concepts of Poverty and Poverty Line
Measurement of Poverty
Trends in Poverty over Time
Variations across States and Social Groups
Inequality: Concept and Measurement
Some Policy Issues

3. Introduction
India’s economic structure has changed dramatically over last 5-6 decades; among the most dynamic economies recently.
Benefits of growth not widely spread to various sections in society, reached only marginally to low income groups.
Similar experience of other countries too.
Question then arose: Can we guarantee to all at least a minimum level of living necessary for physical and social development of a person?
Absolute poverty literature grew out of this question.

4. Why estimate poverty?
Poverty estimates are vital input to design, monitor and implement appropriate anti-poverty policies.
Analysis of poverty profiles by regions, socio-economic groups
Determinants - factors affecting poverty
Relative effects of factors affecting poverty
Allocation of resources to different regions and to various poverty reduction programs
Precise estimates of poverty neither easy nor universally acceptable. Yet, can act as a broad and reasonably policy guide.

5. Intellectual genesis of poverty very old
Adam Smith, Ricardo, Marx: subsistence wage concept
An early empirical work by Dadabhai Naoroji, 1901
Estimated an income level “necessary for the bare wants of a human being, to keep him in ordinary good health and decency”. Estimated cost of food, clothing, hut, oil for lamp, barber and domestic utensils to arrive at ‘subsistence per head’.
In the absence of income distribution data, Naoroji compared computed subsistence level with per capita production to draw attention to mass poverty.
Remarkable work that parallels an early work on British poverty by Rowntree, 1901.

6. Poverty is multidimensional
Deprivation in income, illiteracy, malnutrition, mortality, morbidity, access to water and sanitation, vulnerability to economic shocks.
Income deprivation is linked in many cases to other forms of deprivation, but do not always move together with others.
This discussion focuses on Income poverty.

7. Measurement of Poverty (Percentage of Poor)
Two basic ingredients in measuring poverty:
(1)Poverty Line: definition of threshold income or consumption level
(2)Data on size distribution of income or consumption (collected by a sample survey representative of the population)

8. Poverty Line (PL): Absolute vs. Relative
Relative PL defined in relative terms with reference to level of living of another person; or, in relation to an income distribution parameter.
Examples: 50% of mean income or median, mean minus one standard deviation.
Absolute PL refers to a threshold income (consumption) level defined in absolute terms. Persons below a pre-defined threshold income are called poor.

9. Indian Poverty Line
A minimum level of living necessary for physical and social development of a person.
Estimated as: total consumption expenditure level that meets energy (calorie) need of an average person.
PL comprises of both food and non-food components of consumption.
Considers non-food expenditure actually incurred corresponding to this total expenditure.
Difficult to consider minimum non-food needs entirely on an objective basis

10. Relationship Between Calorie Intake and Per Capita Expenditure

11. An Example of Size Distribution of Consumption Expenditure
MPCE %Population
(half of 10% are below poverty line 320)
Above
All classes 100.0
MPCE: Monthly Per Capita Consumption Expenditure
Poverty Line: Rs. 320 per capita per month
HCR= = 27.3%

12. Incidence of poverty Vs. Under-nutrition
Classification of Population by Poverty Line and
Calorie Norm - Rural India,
Below Poverty Line
Above Poverty Line
Total
Below Calorie Norm
45.32
12.47
57.79
Above Calorie Norm
12.31
29.21
42.21
57.63
42.37
100.00
Source: Government of India (1993): Report of Expert Group.

13. Official PL in India
Originally estimated for : Rs 49 and 56 for rural and urban areas respectively.
Updated using an appropriate price index (CPIAL for rural India, CPIIW for urban).
A monthly per capita consumption expenditure of Rs. 356 and 539 for rural and urban areas respectively for
More than a quarter of India’s population remain below PL in
28.3% Rural % Urban 27.5% Total
Absolute no.: 302 million in

14. Poverty in India: Changes over time
Up to mid-1970s – fluctuations with cycles
Since mid-1970s – continuous fall
Except a few years immediately after start of reforms (early 1990s)
Controversies around estimates for (under estimates poverty)

15. Data Contamination in 1999-2000
7-Day Recall versus 30-Day Recall
NSSO expenditure data collected on 7-day recall period basis during 51st-54th rounds 13-18% larger than that from the 30-day recall period basis.
This difference is reduced to 3 to 4% in the 55th round. Critics attribute this reduction to mix up of recall periods by respondents affecting comparability with previous large-scale surveys.
The 7-day recall period reports more food expenditure and very significant fall in poverty.

16. Comparison of Poverty After Reforms
Uniform Recall Period
Rural
37.3
28.3
Urban
32.4
25.7
Total
36.0
27.5
Mixed Recall Period
27.1
21.8
23.6
21.7
26.1

17. Poverty Head Count Ratio: Major Indian States

18. Poverty By Social Groups: Rural 2004-05

19. Poverty By Social Groups: Urban 2004-05

20. Poverty Measures Head Count Ratio (HCR), Poverty Gap (PG) and squared poverty gap (SPG)
m= no. of poor population, n = total population,
z= poverty line, yi =income of i-th person

21. Alternative Poverty Measures
Head Count Ratio (HCR): proportion of total population that falls below poverty threshold income or expenditure. Based on either national PL or dollar-a-day PL.
Poverty Gap Index (PGI): unlike HCR, it gives us a sense of how poor the poor are. It is equivalent to income gap below PL per head of total population, and expressed as a percentage of the poverty line.
Squared Poverty Gap index (SPG): Adds the dimension of inequality among the poor to the poverty gap index. For a given value of the PGI, population with greater dispersion of income among poor indicates a higher value for the SPG.
Monotonicity Axiom: Not satisfied by HCR
Transfer Axiom: Not satisfied by HCR and PGI

22. Incidence of poverty affected by two factors:
(1)Growth in average income (2)Distribution.
Poverty reduction fast when average income rises and inequality falls.
Fluctuations in poverty incidence till early 1970s primarily due to slow per capita income growth.
Incidence of poverty started to fall after mid-1970s when there was marked acceleration in per capita GDP growth rate to above 3 per cent.

23. Lorenz curve: a curve that represents relationship between cumulative proportion of income and cumulative proportion of population in income distribution by size, beginning with the lowest income group.
If perfect income equality, Lorenz curve coincides with 45-degree line.
Gini coefficient: a commonly used measure of inequality; ratio of area between Lorenz curve and 45-degree line, expressed as a percentage of area under 45-degree line.
If perfect equality, Gini coefficient takes value 0
If perfect inequality, equals 1.
Internationally, Gini coeff. normallyranges between 0.25 & 0.7

24. From Household income/expenditure Survey Compute data on each household’s income/expenditure Rank the families from lowest income to highest income.

25. Lorenz Curve X=Area of the hatched region Gini coefficient = [X/50]100
Cumulative % of Income
Cumulative % of Population
X=Area of the hatched region
Gini coefficient = [X/50]100

26. Average Annual Growth Rates: Real GDP
Neglect of agriculture after economic reforms even as overall economic growth accelerated

27. Average Annual Growth Rate in Per Capita GSDP Arranged by 1993-94 Per Capita GSDP

28. Coefficient of Variation in Per Capita GSDP among 16 Major States

29. Urban MPCE as % of Rural MPCE
Urban-Rural Differences in Mean Consumption Expenditure
States
Urban MPCE as % of Rural MPCE
Andhra Pradesh
141.5
173.9
Assam
177.9
194.8
Bihar
142.9
166.9
Chhatishgarh
180.6
232.9
Gujarat
149.8
187.1
Haryana
123.1
132.3
Himachal Pradesh
212.8
174.2
Jharkhand
190.7
232.0
Karnataka
157.2
203.3
Kerala
126.7
127.4
Madhya Pradesh
155.7
205.9
Maharashtra
194.1
202.1
Orissa
183.2
189.7
Punjab
118.0
156.6
Rajasthan
132.0
163.1
Tamil Nadu
149.0
179.4
Uttar Pradesh
141.2
151.2
Uttaranchal
166.7
158.5
West Bengal
169.9
200.0
All India
163.0
188.2

30. Factors affecting Poverty
Poverty depends on per capita household income which in turn affected by employment, wage rate, land productivity, industrialisation, expansion of service sector and other general growth and distribution factors
Special role of
per capita agricultural income
Employment and real wage rate
Inflation rate and relative food prices
Government expenditure
Per capita development expenditure
Social sector expenditure

31. Indian growth process since 1950s more or less distribution neutral till 1980s.
Importance of a critical minimum steady growth in per capita income for poverty reduction.
Inequality increased in recent years after reforms.
Income elasticity of poverty has fallen.
A given growth will be associated with more limited gains for the poor
Higher growth might more than compensate the adverse effect if fall in elasticity is small.
Reasons for weak participation of poor: limited access to education, land, credit; low agrl growth, underdeveloped infrastructure such as irrigation, roads, electricity in poorer states

32. Demographic Dividend
AS fertility drops, ratio of workers to non-workers rises.
Provides an window of opportunity provided potential workers acquire skills and find productive employment
About a fourth of poverty reduction could be attributed to demographic factors in India
Right economic policies critical, otherwise the scenario could turn out to be demographic liability
Dividend for 2-3 decades only since proportion of older population would eventually increase increasing dependency ratio again

33. Long term scenario for Poverty
Long term growth prospects fairly optimistic: India likely to continue among the fasted growing economies, BRIC to dominate world economy
India might surpass Japan and Germany in terms of total size of the economy, yet its per capita income would be less than world average for a long time
Poverty could be reduced faster provided inequality is under control, labour intensive activities must grow, removal of rigidities in land and labour market critical for reallocation of resources
Government can afford to devote more resources for poverty removal programmes: wage employment (NREGA) or self employment type (SJSY).

34. Thank You