Is poverty being underestimated in India?

Is poverty being underestimated in India?

Sub : Eco

Sec: Unemployment and inflation

Context:- Last month, the government released a factsheet on the 2023-24 Household Consumption Expenditure Survey (HCES), which recorded a decline in poverty in urban and rural areas. Over the last few years, policymakers and academics have debated the issues of incomparable data sets, the unavailability of data, and the definition of an adequate consumption basket to determine a poverty line.

Poverty Estimation in India:

Committees and Methodologies to Determine Poverty in India

• Y.K. Alagh Committee (1979)
  • Methodology: Defined the poverty line based on the minimum calorie intake required for rural and urban areas.
• Lakdawala Committee (1993)
  • Methodology: Used state-specific poverty lines and price indices to estimate poverty.
• Tendulkar Committee (2009)
  • Focus shifted from calorie consumption to broader spending patterns.
  • Methodology: Adopted the mixed reference period (MRP) to consider expenditure on food and non-food items.
• Rangarajan Committee (2014)
  • Proposed a new poverty line with higher thresholds.
  • Methodology: Included modified consumption baskets to better reflect changes in living standards.
• Multidimensional Poverty Index (Introduced by NITI Aayog, 2021)
  • Methodology: Based on 12 indicators, including access to bank accounts and maternal health (broader than the UNDP’s 10 indicators).

Improvement in Methodology: URP to MRP and MMRP

• The Uniform Reference Period (URP) involved a 30-day recall period for all items.
•  The Mixed Reference Period (MRP) introduced a combination of recall periods: 30 days for food and 365 days for non-food items, allowing better tracking of spending patterns.
• The Modified Mixed Reference Period (MMRP) further refined this by including a seven-day recall period for certain food items, improving the accuracy of expenditure data.
• Recent Developments: The NSSO has begun visiting households in multiple sittings, enabling respondents to recall expenditures more accurately and improving data reliability.

Recent Decline in Poverty

• The 2023-24 Household Consumption Expenditure Survey (HCES) factsheet reported a sharp decline in poverty.
• Estimations show a decrease of 17-18% in poverty levels since 2011-12.
• Estimates for poverty in 2022-23 using the Rangarajan line were close to 10%.
• High GDP growth, flagship government programs, and improved public delivery systems have contributed to poverty reduction.
• The National Food Security Act and other interventions play a crucial role in sustaining low poverty levels

Urban vs. Rural Poverty

• According to HCES, the gap between rural and urban consumption is narrowing, with rural consumption patterns diversifying.
• However, the classification of rural areas is based on Census data (2011), so a significant portion of the rural areas is basically urban or peri-urban in character.