Poverty and Inequalities – Concepts and Measurement | UGC NET Economics – Notes

Poverty

Meaning of Poverty

Poverty refers to a state in which an individual or household is unable to attain a minimum acceptable standard of living, and constitutes one of the central concerns of development economics, since the reduction of poverty is widely regarded as a primary objective of the development process itself. Poverty is conventionally analysed in economics under two broad conceptual approaches: the absolute concept of poverty and the relative concept of poverty, and more recently, through the broader multidimensional approach to poverty measurement.

Absolute Poverty:

Absolute poverty refers to a condition in which a person’s income or consumption expenditure falls below a fixed, minimum threshold required to meet certain basic biological or physiological needs, chiefly a minimum level of nutrition (caloric intake), along with minimal provision for clothing and shelter. This threshold is termed the poverty line, and absolute poverty is measured by comparing an individual’s or household’s income/consumption against this fixed benchmark, independent of the general standard of living prevailing in the wider society. The concept of absolute poverty is particularly associated with poverty measurement in developing countries, where the identification of the poor rests principally on the criterion of basic subsistence and survival needs.

Relative Poverty:

Relative poverty, by contrast, defines poverty not in terms of an absolute minimum, but in relation to the general standard of living or income distribution prevailing in a society; a person is considered relatively poor if their income falls substantially below the average or median income of the society in which they live, even if their absolute level of consumption would be sufficient to meet basic biological needs. Relative poverty is more commonly used as a concept of poverty measurement in developed countries, where basic subsistence needs are typically already met by the vast majority of the population, and the policy concern shifts towards the relative deprivation and social exclusion experienced by those at the lower end of the income distribution; a commonly used relative poverty line, for instance, defines the poor as those with income below 50% or 60% of the median income of the country.

The Poverty Line: Concept and Measurement in India

The poverty line is the critical threshold of income or consumption expenditure below which a person is classified as poor, and its precise construction has evolved considerably in India through several official expert committees.

Early Approach and the Alagh Committee (1979):

The earliest official approach to poverty measurement in India, associated with the Task Force headed by Y.K. Alagh (1979), defined the poverty line in terms of a minimum calorie norm, specifically 2,400 kilocalories per capita per day in rural areas and 2,100 kilocalories per capita per day in urban areas, reflecting the generally higher energy requirements associated with the more physically demanding nature of rural occupations. The monetary value of the expenditure required to secure this minimum calorie intake, based on the prevailing pattern of consumption, was then computed to derive the poverty line expressed in terms of per capita monthly expenditure, separately for rural and urban areas, and this poverty line was subsequently updated over time for inflation using appropriate price indices, and periodically re-estimated using data from the National Sample Survey Office (NSSO) consumption expenditure surveys.

Lakdawala Committee (1993):

The Lakdawala Committee (1993) made two principal methodological refinements to the poverty line: first, it maintained the calorie-based poverty line originally derived by the Alagh Committee at the national level, but introduced state-specific poverty lines, in recognition of the substantial inter-state variation in prices and cost of living; and second, it recommended that the poverty line be updated over time using state-specific price indices, specifically the Consumer Price Index for Agricultural Labourers (CPI-AL) for rural areas and the Consumer Price Index for Industrial Workers (CPI-IW) for urban areas, rather than a single national price index.

Tendulkar Committee (2009):

The Tendulkar Committee (2009), chaired by Suresh Tendulkar, introduced a significant methodological shift in the construction of the poverty line, moving away from the exclusive calorie-based norm towards a poverty line based on a broader consumption basket, encompassing not only food but also expenditure on education, health, clothing, and other non-food items, on the grounds that the earlier calorie-based approach had, over time, produced poverty lines that were inconsistent with actual observed consumption patterns and had come to significantly understate the true extent of poverty, particularly since actual calorie consumption had been observed to decline over time even as poverty ratios (based on the old methodology) also appeared to decline, an anomaly that raised serious questions about the validity of the calorie-based approach. The Tendulkar Committee also recommended a uniform poverty line basket for both rural and urban areas (adjusted for price differences), and its methodology substantially increased the officially estimated poverty line and poverty ratio compared to the earlier Lakdawala methodology.

Rangarajan Committee (2014):

The Rangarajan Committee (2014), chaired by C. Rangarajan, was constituted to review the Tendulkar methodology and recommended a further upward revision of the poverty line, based on a more comprehensive consumption basket incorporating specific normative levels of intake of food items along with non-food essentials such as education, health, transport, and clothing, calculated separately for rural and urban areas, resulting in a higher poverty line and higher estimated poverty ratio than under the Tendulkar methodology, though the Rangarajan Committee’s recommendations have not been formally adopted by the Government of India as the official poverty line, and India currently does not have a single, universally accepted, updated official poverty line.