Poverty: Types, Estimation, Poverty Gap

 

Poverty

Poverty is a state in which an individual is deprived of basic essential needs to sustain minimum standard of living. 

Types of Poverty

Poverty is of two types:

1. Absolute Poverty

2. Relative Poverty

1. Absolute Poverty: 

Measured by scarcity of resources in absolute term. 

1990- World Bank defined absolute poverty as 1$ a day. 

2015- as per World Bank, absolute poverty is income of less than 1.90$ per day

2. Relative Poverty: 

Measured by relative living standard with respect to regional living standard. 

In developed countries, the concept of relative poverty prevail. While in developing countries, absolute poverty is used to measure the poverty level. 

Poverty Gap(Poverty Gap index) 

The concept was given by World Bank. 

The poverty gap is the average shortfall from the poverty line. It quantifies the severity of poverty by measuring how much the individual income is less than poverty line income. 

Avg poverty gap*number of total poor people= money required to eliminate the poverty

Multidimensional Poverty index(MPI) 

The poverty estimation based on three dimension- Health, Education and Standard of living

As per UN-MPI, 10 indicators are used to calculate the MPI. 

As per Niti Aayog MPI, 12 indicators are used to calculate the MPI(10 indicators of UN-MPI + maternal health+ bank account).

A person is said to be multidimensional poor if his/her avg score is less than 33% in these indicators. 

Headcount Ratio

Percentage of a population that falls below the Poverty Line. 

Headcount ratio= (population below poverty line/total population) *100

Headcount ratio based on MPI

Uncensored Headcount ratio(indicator- sanitation)= numerous of poors based on sanitation indicator

Censored Headcount ratio(sanitation)= number of poor in sanitation indicator(with additional condition of being Multidimensional poor, his/her score should be less than 33% in MPI) 

Poverty Estimation in India

In India poverty estimation was done by Planning Commission based on NSSO data. 

Now Niti Aayog estimate poverty level based on NSSO data. 

1867- Dadabhai Naoroji estimated Poverty in his book "Poverty and Unbritish rule".

poverty line- ₹16 to ₹35 per capita per year

1938- National Planning Committee

poverty line- ₹15 to ₹20 per capita per month

1947- Poverty in India was about 80%

1957- Poverty in India was about 65%

1962- Planning Commission Expert Group 

poverty line- ₹20(rural) and ₹25(urban) per capita per year respectivel

1971- VM Dandekar and N Rath proposed expenditure based poverty measurement

1979- Alagh Committee recommend poverty estimation based on nutritional expenditure 

Rural area- 2400 kcal(₹49.09)  Urban area- 2100 kcal(₹56.64) 

Official poverty counts began for the first time in India

1993- Lakdawala Committee

Took account of state level price for 2400 kcal(rural region) and 2400 kcal(urban region). State wise price disparity came into picture

2009- Tendulkar Committee

Added health and education in poverty estimation and defined a common poverty line based on per day expenditure(earlier per month) on uniform consumption basket

Rural area- ₹26 per day,    Urban area- ₹32 per day

Survay data of NSSO was based on Mixed Reference Period(MRP) estimates, earlier since 1971 it was Uniform Reference Period(URP) 

2014- Rangarajan Committee

Recommend different consumption basket for rural and urban areas. 

Recommend to use Modified Mixed Reference Period(MMRP) instead of Mixed Reference Period(MRP) in survey

The recommendations of Rangarajan committee was rejected by Govt. 

The current official measures of poverty are based on the Tendulkar poverty line, fixed at daily expenditure of ₹27.2 in rural areas and ₹33.3 in urban areas is criticised by many for being too low(when tomato is above ₹100 per kg).

As per Niti Aayog MPI 2023, India has witnessed a substantial decline in multidimensional poverty, with a decrease of 9.89 percentage points from 24.85% in 2015-16 to 14.96% in 2019-21. Do you agree? 

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Uniform Resource Period(URP): survey is based on consumption in last 30 days for all items

Mixed Reference Period(MRP): survey period is based on items. 

For food items- 30 days period

For health, education, clothes etc- 1 year period

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