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Sep 28, 2014

[Economics] Poverty Estimations in India

Who decides Poverty line?
Planning commission
How does it decide poverty line?
Monthly per capita Expenditure
Suresh Tendulkar designed its Formula.
Who provides the data of monthly Expenditure?
NSSO- National sample survey organization
Under Ministry of Statistics and Programme Implementation

Tendulkar’s Poverty Line
Area
Monthly Expenditure per person (in Rs.)
Rural
816
Urban
1000

According to Tendulkar formula, poverty has declined, as seen in following graph:



No of poors in India (Tendulkar Method)

2004
2011
Poor (in %)
37.2
21.9
Poor (in cr)
41
27

Economic Survey 2013
Highest Rural Poverty
Lowest Poverty
1. Odisha and Madhya Pradesh
1. Kerala (7.1%)
2. Bihar
2. Himachal Pradesh (8.1%)
3. Assam
3. Punjab (8.3%)
Highest Rural Unemployment
Highest Urban Unemployment
1. Kerala
1. Bihar
2. Assam
2. West Bengal
3. Bihar
3. Andhra Pradesh
4. West Bengal
4. Haryana
Lowest in  Gujarat (3/1000)
Lowest in Gujarat (34/1000)

Committees
Tendulkar
C. Rangarajan
Set up by
Planning Commission
Planning Commission
Set up in
2005
May 2012
Submitted report in
2009
July 2014
Poverty Estimation Method
Monthly per capita expenditure
Monthly expenditure of family of 5

 Urban Poverty Line:

Urban Poverty Line (in Rs.)
Tendulkar
C. Rangarajan
Per day per person
33
46.90 (47)
Per person per month
1000
1407
Per family of 5, per month
5000
7035

Rural Poverty Line:

Urban Poverty Line (in Rs.)
Tendulkar
C. Rangarajan
Per day per person
27
32
Per person per month
816
972
Per family of 5, per month
4080
4860

Rangarajan Estimation and controversies:

Ø     C. Rangarajan has received lot of negative publicity because:
o       He kept poverty line to be ridiculously low – Rs.32 for rural and Rs.47 for Urban.
o       Therefore He is insensitive towards the poor.
Ø     But Rangarajan never gave those daily numbers. He had given combined poverty line for a family of five members- Rs.7035, which is a plausible number. After all, if you live in a family of five, then some costs will get reduced per head (e.g. rent, light bill, LPG etc.)
Ø     Besides, if a family spending >7000 per month = their income would be definitely above 7000. So in reality, Rangarajan has not “insulted” the poor. Infact, He has tried to cover more poor under BPL & government schemes.
Ø     Media has derived those “insensitive” daily Expenditure figures (Rs.33, Rs.47) by dividing the monthly Expenditure of five people, then further dividing that number by 30.
Ø     If you objectively convert Rangarajan’s poverty line into purchasing power parity (PPP), it’s $2.44 per person, per day. And that figure even higher than World Bank estimate! Thus, Rangarajan included more poor in BPL, than even World Bank would!
Ø     Thus, journalists and politicians have misinterpreted the poverty line issue- just like they misinterpreted Anti-CSAT movement to be against those 8 easy English MCQs above Decision Making section!





How 100 million poors increased?
Since Rangarajan raised poverty line, obviously more people would become “below poverty line”.




Poverty in India: Year 2011
Formula
BPL in India (in crores)
Tendulkar
27
Rangarajan
37
Difference
10 crore = 100 million BPL increased

Calorie Expenditure:

Tendulkar
Rangarajan
Only calorific value in Expenditure
Calorie + Protein + Fat

Calories
Lakdawalla
Rangarajan
Rural
2400
2155
Urban
2100
2090

Observe that Ranga reduced the calorie requirement- why?
Because ICMR study report said so. Besides, over the years use of machinery and vehicles has increased, so today’s generation doesn’t require that much “calorie”.

Rangarajan also included Expenditure on Protein and Fats

Gms/day
Rural
Urban
Protein
48
50
Fats
28
26

  
Tendulkar
C. Rangarajan
Only counts Expenditure on food.
food + nonfood items such as education, healthcare, clothing, transport, rent
----------------
§                  Urban poverty increased on faster rate (40%) than rural poverty (19%)
§                  This is obvious, because Rangarajan included non-food items like rent, education etc.
§                  These items/services are more expensive in cities than in villages.
Static, fixed line- only calorie Expenditure.
Rangarajan recommends that at any given point of time,
§                  Bottom 35% rural junta always be considered poor
§                  Bottom 25% urban junta always be considered poor.
-----------------
§                  Poverty ratios should be disengaged from entitlements under Government schemes.
§                  e.g. cheap food grain quota under Food Security Act should not be based on BPL-ness, but social-caste census.

  
Monthly Per Capita Expenditure (MPCE): NSSO 68th Round (2011 – 12)
Area
Average
MPCE
Highest
In
% of
Food Expenditure
Urban
Rs. 2399
Haryana
38.5%
Rural
Rs. 1278
Kerala
48.6%

·        This indicates rural-urban disparity. City folks have more money to spend than Villagers.
·        Engel’s law says: when income rises, % of overall income spent on food item decreases.
·        We can see this happening in urban areas. City folks spending ~39% while villagers spending ~49% of their income on food.
·        Among states: Kerala spends the least money




 Changing faces of poverty:


Year
Poverty Ratio
Number of Poor (in million)
Rural
Urban
Total
Rural
Urban
Total
Lakdawala Method
1973-74
56.4
49.0
54.9
261.3
60.0
321.3
1977-78
53.1
45.2
51.3
264.3
64.6
328.9
1983
45.7
40.8
44.5
252.0
70.9
322.9
1987-88
39.1
38.2
38.9
231.9
75.2
307.1
1993-94
37.3
32.4
36.0
244.0
76.3
320.3
2004-05
28.3
25.7
27.5
220.9
80.8
301.7
Tendulkar Method
2004-05
41.8
25.7
37.2
326.3
80.8
407.1
2009-10
33.8
20.9
29.8
278.2
76.5
354.7
2010-11
25.7
13.7
21.9
216.7
53.1
269.8
Rangarajan Method
2009-10
39.6
35.1
38.2
325.9
128.7
454.6
2011-12
30.9
26.4
29.5
260.5
102.5
363.0


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