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Use and Abuse of the Poverty Line

A Vaidyanathan

Irrespective of how the poverty line is dened, it is not possible to arrive at a denitive estimate of the incidence of poverty. Nor can strategies to address the myriad and varied disabilities of the poor be decided on the basis of the overall incidence of income poverty alone. It holds that it makes more sense to focus on gaining a fuller picture of the living conditions of the poor with the Planning Commission preparing a comprehensive report on the state of poverty every ve years, as suggested by the Lakdawala Committee in 1993.

This is an expanded version of a paper presented for a seminar in memory of Suresh D Tendulkar held at the Delhi School of Economics in December 2012. Much to my regret, I could not participate in the seminar. A Vaidyanathan (a.vaidyanathan053@gmail. com) is a well-known economist based in Chennai who over the years has written extensively on poverty measurement.
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he idea that ensuring a minimum level of living to all within a reasonable period must be a central objective of planning was mooted in the early 1960s by a working group of eminent public gures. They argued that a situation in which nearly half the population lived in abject poverty was unacceptable on humanitarian grounds and that its speedy eradication was necessary for orderly progress. The central aim of development strategy therefore had to be to provide, within a reasonable period of time, every citizen with a level of income needed to afford a nutritive diet along with a reasonable standard of other necessities. Following this, the Perspective Planning Division of the Planning Commission prepared a paper outlining a comprehensive and integrated plan to achieve a modest minimum income (Rs 20 per capita per month) for all households by 1975. The assumptions underlying this exercise, and the feasibility of achieving the projected rate and pattern of overall growth and distribution of incomes, were widely discussed within and outside the Planning Commission. Though it became a non-starter because of disruptions caused by military conicts and the severe droughts of the 1960s, the idea that ensuring a minimum level of living to all should be the central objective of planning took deep root in the political and economic discourse on development policy. The basis for dening the scope and content of the minimum; the data and methodology used for estimating and tracking the incidence of poverty; and the merits of different strategies for achieving it rapid growth per se, redistribution of wealth and incomes, targeted poverty alleviation programmes, and various combinations of these have
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been, and continue to be, controversial. However, trends in the incidence of absolute poverty, measured by the proportion of population with per capita consumption expenditure below a stipulated minimum, have come to be widely used in both academic and public discourse as a key index for assessing the efcacy of development plans in eradicating poverty. The scope, content, and valuation of the minimum standard of living were reviewed by a special working group of the Planning Commission in 1979. It suggested that the national minimum standard should be based on providing a household of average size and composition adequate calories for a healthy active life as recommended by nutrition experts, along with a reasonable level of essential non-food items. The commodity composition of these components was determined on the basis of patterns of consumption of households with the specied calorie intake in rural and urban areas, as reported in National Sample Survey (NSS) consumer expenditure surveys. Basic education and health services were expected to be provided free to all by the state. The market value of the bundle, which gives a measure of the income that the reference households would need to afford this minimum from their own resources, denes the poverty line. The real content of the minimum bundle in terms of the quantum of specic goods and services should be the same for all regions and for both rural and urban populations. But its valuation should take into account differences in the prices of the components across regions, and rural and urban areas at a given point of time, and of their differential changes over time. The proportion of population falling below the poverty line (bpl) was to be estimated using NSS data on the distribution of population by levels of per capita consumption expenditure. These recommendations were accepted and came to be accepted as the basis for ofcial estimates of poverty incidence. Subsequent discussions raised issues regarding the basis for determining the
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composition of the minimum food basket and of non-food consumption; the desirability of taking regional variations in demographic characteristics and preferences for dening the poverty line for rural and urban areas in all regions; and the procedures for adjusting for spatial and temporal price variations. These were reviewed comprehensively and in depth by another expert committee chaired by D T Lakdawala. Its report, submitted and accepted in 1993, while justifying the basis for determining the commodity content of the minimum bundle, suggested signicant improvements in the bases and methods of adjusting for spatial and temporal price variations. It further suggested that, on practical considerations, poverty incidence estimates be based entirely on data from NSS consumption surveys, as these were the most comprehensive, detailed, and comparable source of data on the level and composition of private consumption expenditures. Ofcial estimates of poverty have since been recast on this basis till the recent revisions based on the Suresh Tendulkar Committee recommendations. Changes Proposed by the Tendulkar Committee The Tendulkar Committees approach to dening and estimating poverty incidence differed from the earlier approach in several important respects. The extant practice is based on a normative concept of minimum standard of living as comprising the requirements of food (measured in terms of calorie intake) assessed by nutritionists to be essential for a healthy, active life, together with reasonable allowances for basic requirements of non-food items of human consumption. But the state has to take care of ensuring universal basic education and healthcare. The Tendulkar Committee rejected this approach and argued for de-anchoring the poverty line estimation from calorie norms, broadening the scope of the minimum standard of living by giving greater attention to its non-food components, and including private expenditure on education and health in its determination. The quantum of various goods and services deemed to constitute the desirable
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national minimum living standard would not be determined normatively but on the basis of observed patterns of consumption reported by a reference group of poor urban households. Poverty incidence in rural and urban areas across states and over time would continue to be estimated entirely on the basis of private consumption expenditure overall and of different sections of the population reported in NSS consumption surveys. However, recognising the sensitivity of household responses on consumption expenditure to the reference period for which information is sought, the Tendulkar Committee suggested using estimates based on different reference periods for different commodity groups, rather than the earlier practice of a uniform 30-day reference period for all. Signicant improvements were suggested for the valuing of this bundle with appropriate adjustments for rural-urban and interstate price differentials to dene statespecic poverty lines for both rural and urban areas. The content of the socially desirable minimum living standard, and the basis and methods for estimating it, of course, needs to be reviewed in the light of changing perceptions of what constitutes basic needs and also changing opportunities (largely as a result of technological changes) to meet them. However, the Tendulkar Committee prescriptions marked a radical departure from earlier practice and made a signicant difference to estimates of the poverty incidence overall, across regions and over time. The rationale for the suggested changes and their implications merit critical scrutiny. Take, for instance, the assumptions regarding the level and content of food intake needed for a healthy, active life. These, of course, need critical reassessment in the light of more recent research. Experts continue to differ on what constitutes an adequate level and composition of food intake to sustain a healthy, active life, and on whether there is a unique relation between calorie intake and nutritional and health status. The Tendulkar Committee rightly noted that calorie consumption estimated from
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sample surveys of private consumption was not found to be well correlated with the nutritional outcomes observed from other specialised surveys, either over time or across space. Besides citing a Food and Agriculture Organisation (FAO) recommendation for lowering the earlier norms to allow for changes in the nature and intensity of activity, it pointed to the need to recognise signicant changes in consumption patterns. In the event, it chose to use the level and pattern of actual food consumption of urban families that were close to the earlier denition of the poverty line as the basis for deciding the food content of the minimum standard. Even while rejecting the calorie-centric approach, the report went to considerable length to point out that the calorie intake of households in most states is close to the FAOs revised recommendations of requirements (1,900 kcal per capita per day (pcpd) and 1,800 kcal pcpd, respectively, in rural and urban areas), which are 15%:20% lower than the earlier national nutrition advisory committees norms. Whether the FAOs downward revisions of requirements are well-founded remains to be established. If the revised standards are considered justied, why not use them explicitly and directly in revising the poverty line? The Tendulkar Committee went into the content of the non-food consumption component of the minimum living standard more explicitly and in greater detail than earlier exercises. The content of non-food consumption of goods and services to be included in the minimum basket was to be decided on the basis of the details on quantities for various items reported by sample households in

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the NSS consumption surveys of 2004-05 for mixed reference periods (30 days for some items and 365 days for others). Basing the minimum consumption basket on the actual consumption pattern of urban near-poverty households without any consideration of the essentiality or functional role of different items, the levels of their use, and any concept of the desirable minimum is arbitrary and open to question. Perhaps the most radical and questionable change was the inclusion of private expenditures on education and health to achieve minimum standards of basic healthcare and education for all children as part of the minimum standard. It blatantly ignored the constitutionally mandated responsibility of the state to ensure this. The assumption that these outcomes are a function of total private expenditures for these services is obviously quite untenable. Having per capita incomes equal to the poverty line does not ensure that a household can or will choose to spend enough on the education of its children or access quality healthcare. These needs can be met only through a more accessible and better quality of public schools and health centres. The Tendulkar Committee recommendation on this ignored the constitutionally mandated responsibility of the state to provide universal free school education and basic healthcare to all. The rationale for the complete switch from a normative basis to observed behaviour and its implications for assessing trends in poverty incidence are far from convincing. Nor is the justication for using the observed pattern of consumption of an arbitrarily chosen section of the population, such as nearpoverty urban households, to decide the scope and content of the national minimum living standard. This decision has to be based on a consensus on the essential requirements of a healthy, active life; and an objective determination of the level and composition of commodities and services that can full these requirements in a given socioeconomic and technological environment, and it must recognise and respect the mandatory obligation of the state to
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provide basic education and health services to all. Impact on Poverty Estimates Estimates of the poverty line for rural and urban areas for different states, and for all India, reworked on the basis of the changes recommended by the Tendulkar Committee in its report are shown in Table 1.
Rural Conventional PL HCR

also raises the value of the minimum bundle. There are also differences in the basis of valuation. The net effect of these factors is that the revised urban poverty line is about 7% higher than the old one for the country as a whole. However, the impact of the new procedure varies widely across states. The revised lines for urban areas are lower than the old ones in as many as six states
Urban Revised

Table 1: Comparison of Poverty Lines in 2004-05: Conventional and Revised

Conventional PL HCR Revised PL HCR

PL

HCR

Andhra Pradesh Assam Bihar Chhattisgarh Gujarat Haryana Himachal Pradesh Jammu and Kashmir Jharkhand Karnataka Kerala Madhya Pradesh Maharashtra Odisha Punjab Rajasthan Tamil Nadu Uttar Pradesh Uttarakhand West Bengal All-India

293 387 354 322 354 415 394 391 367 324 430 328 362 326 410 375 352 366 478 383 356

7.5 17 32.9 31.2 13.9 9.2 7.2 2.7 40.3 12 9.6 29.8 22.2 39.8 5.9 14.2 16.9 25.3 31.7 24.2 21.8

433 478 433 399 501 529 520 522 405 417 537 408 485 408 543 478 441 435 468 445 446

32.3 36.4 55.7 55.1 39.1 24.8 25 14.1 51.6 37.5 20.2 53.6 47.9 60.8 22.1 35.8 37.5 42.7 35.1 38.2 41.8

543 379 435 560 541 504 504 554 451 600 559 570 666 528 466 560 547 483 638 449 539

20.7 2.4 28.9 34.7 10.1 11.3 2.6 8.5 16.3 27.2 16.4 39.3 29 40.3 3.8 28.1 18.8 26.3 32 11.2 21.7

563 600 526 514 659 626 605 602 531 588 584 532 632 497 642 568 560 532 602 573 578

23.4 21.8 43.7 28.4 20.1 22.4 4.6 10.4 23.8 25.9 18.4 35.1 25.6 37.6 18.7 29.7 19.7 34.1 26.2 24.4 25.7

Conventional relates to official estimates based on the Lakdawala Committee report; revised relates to estimates of the Tendulkar Committee. PL: poverty line Rs per capita personal consumption expenditure (pcpce); HCR: proportion of population below the poverty line.

Since the near-poor urban households at the national level as per the earlier norm constitute the reference group for determining the revised national minimum standard, one would expect the difference between the earlier and the Tendulkar Committee poverty line for urban India to be relatively small. However, the content of the new minimum standard is substantially different from that of the earlier standard the reported calorie intake of the new reference group is much below the old norm. But the levels of non-food consumption are higher. The inclusion of private expenditures for education and health widens the scope of the minimum bundle. The use of mixed reference period (MRP) estimates, rather than the uniform reference period (URP) ones,
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(in which the poverty lines are lower than the national average) and higher in others. The range of variation (-8% to +58%) is wide and seems to be largely a function of the variation in state-specic poverty lines relative to the national one. The effect of the revised procedure is much more marked in the case of rural areas. The revised poverty line for rural India is about 25% higher than the earlier one, both at the national level (by close to 25%) and in all the states (by between 10% and 48%). This variation is also reected in the overall incidence of poverty. The headcount ratio (HCR) based on the Tendulkar Committee recommendations is higher compared to the earlier ones, the difference in rural areas being 50% or less in three states, and 200% to 400%
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in four. These variations are largely explained by variations in the state-specic poverty lines relative to the national one. This is also the case in urban areas but the range of variation is much less. In states where the new poverty line is lower than the national poverty line, the revised HCR is less than the earlier ones. In others, the new ratio is higher, but mostly in the range of 10% to 80%. Problems of Estimation These estimates are based entirely on data on quantity and value of expenditure on various commodities and services of populations with different levels of overall per capita consumption expenditure gathered by the NSS. The compelling reason for using the NSS is that it is the only source of comprehensive, and spatially and temporally comparable, data on all these aspects collected by trained and supervised eld investigators from a statistically representative sample of rural and urban households in all states. But there are several problems in using the data for estimating poverty incidence, some of which have been addressed by the Tendulkar Committee, while some important others remain unresolved. The Tendulkar Committee reviewed and revised procedures for valuation of the minimum bundle across states and over time using unit price data obtained from NSS consumption surveys. Its recommendation to use unit prices of various components of goods and services constituting the minimum standard, as reported by the near-poverty urban households in the NSS consumption surveys, was a welcome renement over earlier methods used to handle this aspect. The suggested procedures were transparent, comprehensive, and marked a considerable improvement over past practice. But without revising past years estimates on this basis, it would not be possible to know the difference they make to assessing long-term trends. Such an exercise is not on the suggested agenda for further work. Traditionally, the NSS canvassed data on monthly per capita expenditure (mpce) on all commodities and services in the 30 days prior to the date of interviews.
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The 2004-05 survey got households to report their consumption expenditure on all items for a 30-day reference period (URP) and expenditure using MRPs for select, less-frequently consumed items during the last 365 days, and in the previous 30 days for all others. Compared to URP-based estimates, MRP estimates of mpce are around 3.5% in rural and 5% in urban areas. Given the poverty line and the distribution of population at different levels of mpce, the incidence of poverty based on MRP would be lower than that based on URP. Across states, since the difference between the two ranged between 0% and 8% in rural and 3% and 8% in urban areas, the effect on poverty incidence estimates also varies. The effect would be considerably larger if the recommendation to use estimates based on more mixed reference periods (MMRP) was used of 30 days for all cereals, pulses, sugar, and milk and their products; seven days for edible oil, egg, sh, meat, vegetables, fruits, spices, beverages, and refreshments; and 365 days for others. Estimates based on all three reference periods, now available for 2009-10 (Table 2), show the national average mpce based on MRP is marginally higher than that based on
Rural MRP

There are also unresolved problems arising from (a) the large and growing divergence between its estimate of the level and composition of total private consumption expenditures and those published in ofcial national accounts statistics (NAS); and (b) that NSS data on both mean mpce and the inequality in its distribution are prone to non-sampling errors of unknown magnitude. NSS estimates of average mpce based on URP at the national level are consistently lower than those of NAS by a large and increasing margin. They were lower than NAS estimates by about 30% in 1987-88, by 43% in 1999-2000, and by nearly half in 2004-05 and 2009-10. The patterns of consumption also differ between the two estimates. These differences would be smaller when the comparison is made with the MRP estimates of the NSS and more so relative to MMRP estimates. There are also large differences in the commodity-wise distribution of expenditure, reecting differences in scope, coverage, data sources, assumptions, and basis of valuation of the two estimates. The NSS has the great merit of providing information on the quantities of a detailed common list of goods and
Urban MRP

Table 2: Comparison of Estimates of Monthly Per Capita Expenditure Using Different Reference Periods
URP MMRP URP MMRP

Total

1st decile 10th decile All

378 2,294 928

405 2,330 953

453 2,517 1,054

521 3,423 1,786

555 5,608 1,856

599 5,863 1,984

Source: NSS report no 538, estimates relate to 2009-10.

URP by 2% and 4%, respectively, in rural and urban areas. Those based on MMRP are higher by 14% and 11%, respectively, than URP. MMRP-based estimates of poverty incidence would therefore be substantially lower than those based on URP as well as MRP overall. In practically all states, mpce based on MMRP is close to or higher than that with URP but in varying degrees by -1% to 28% (more than 15% in half the states) in rural areas and -9% to 22% (more than 15% in ve states) in urban areas. Besides adding to the confusion about the level of the poverty line, its periodic revision (justied as it may be) also complicates the task of getting comparable estimates of poverty for the past.
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services actually consumed by sample households and their prices. But it suffers from differences in coverage, under-reporting, and recall lapses in the case of non-food items or items that are less-frequently consumed. It is also prone to non-sampling errors due to recall lapses, non-responses, incomplete and/or biased responses by sample households, and deciencies in the design and canvassing of schedules. That the list of products specied in the schedules does not adequately capture the advent of new and changing products also affects comparability of responses over time. NAS estimates of private consumption on the other hand are based on macro
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statistics of gross production and foreign trade of commodities and services. Only a small part of it is based on periodic reports of actuals based on sample surveys and data compiled by ofcial agencies. The quality of these data is also marked by incomplete coverage, nonreporting, and delayed reporting. Moreover, estimates for the unorganised segments of the economy, which account for a large part of it, are based on data that are even more inadequate and patchy. Estimates of end use are based on rather arbitrary assumptions on the proportion of different goods and services that are used for nal private consumption. They do not distinguish between use for private household consumption and use by non-household institutions. They include some items (for example, expenditures on imputed rent and nancial intermediation services) that are not covered by the NSS. Moreover, unlike the NSS, NAS estimates the market value of various goods at national average prices. No state-level estimates are available. These factors make it impossible to say which one is more reliable. And full reconciliation is very difcult. A CSO study that tried to pin down the reasons for these differences found that the NSS estimates of the value of food consumption reect differences in unit prices for some, in quantities for some, and in both for others. Quantity comparisons are not possible for non-food items. The difference in their value is attributed to the exclusion of imputed rent and nancial intermediation services in the NSS. Adjusting for these, the difference between the two sets of estimates are narrowed, but not eliminated. About 60% of the unadjusted difference between the two sources remains unexplained after adjustments. Inequality in Distribution of Consumption The use of NSS data on the distribution of population by levels of mpce also poses some problems. This is justied provided that any bias in reported consumption does not vary with the level of mpce or if such bias is unlikely to be signicant in the poorer half of the population. In that case, estimates of the proportion of
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population below a xed poverty line based on the NSS distribution of population by levels of per capita consumption can be taken to be reasonably reliable (see Srinivasan et al 1974). However, this presumption has become questionable. The widening difference between NSS and NAS estimates over time and the steep rise in this difference for non-food items could be due to a growing downward bias in the reported consumption of upper-income households who use larger-than-average quantities of highend goods and services. Field experience suggests that they are increasingly less willing to give time to eld investigators and provide complete and reliable information. This is the basis to expect underestimation bias to be much less among the poorer segments of the population. This presumption has been called into question in view of that mean per capita consumption expenditure on food and non-food consumption reported by even the poorest decile are higher by as much as 20% in rural areas and 11% in urban areas with MMRP compared to URP at the national level. This pattern is also evident in all the states. Estimates of rural and urban poverty based on MMRP estimates of mpce will therefore be different and in most cases substantially less than those using URP estimates. Under these conditions, irrespective of how the poverty line is dened, it is not possible to arrive at a denitive estimate of poverty incidence that can be used as a reasonably robust benchmark to assess the extent to which the targets of ensuring incomes above specied poverty lines are being realised in rural and urban areas and across regions. The sensitivity of estimates of poverty incidence across regions both in absolute and relative terms also dents its credibility as an objective basis for deciding such important issues as the transfer of resources from the central government to various states by the nance commission and the Planning Commission. Nor can strategies to address the myriad and varied disabilities of the poor be decided on the basis of the overall incidence of income poverty. They need to be based on assessments of the deciencies of access and realisation
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relative to accepted minimum desirable levels of specic components of living standards such as food intake, unemployment and underemployment, housing, connectivity, and indicators of educational and health status. Detailed analyses of data from surveys of the type done by the NSS have helped us get a better understanding of the socioeconomic and demographic characteristics of households that do not meet standards across regions and also of the underlying factors. Assessing the well-being of individual families and identifying poor households at the ground level to determine their eligibility for entitlements under various poverty alleviation schemes is far more problematic. The poverty line is a measure of the income that the reference household with specied characteristics needs at a given point in time to be able to afford the minimum bundle. Given the variability of the characteristics of households (in terms of age, sex, and activity), the requirements of individual households and incomes needed for meeting the minimum standard will not be the same as the poverty line. Biases in actual consumption patterns reported by households close to the poverty line and that these are invariably different from the normative minimum bundle make it more difcult to assess whether and to what extent individual households meet the normative minimum standard. Sample surveys in any case are useless for identifying the poverty status of individual households, which is necessary to determine their eligibility for benets under different poverty alleviation schemes and ensure that the benets ow only to the eligible ones. For this purpose, governments have resorted to special censuses to identify BPL families. These exercises are very expensive and call for massive efforts to mobilise, organise, and supervise enumerators. Their ability to provide accurate and objective identication of poor households is highly suspect. Besides the usual problems of the ability and willingness of respondents to provide reliable information on their incomes, responses are likely to be biased because households
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are aware that this information will affect the prospects of their getting benets from government programmes. Such censuses cannot be repeated often enough to keep up with changes in incomes and prices. Need for a Different Approach Conscious of these considerations, the Lakdawala Committee had pointed out the need for keeping the use of calorie requirements as an element in determining the poverty line distinct from the concept of malnourishment and undernourishment. While the latter is an important indicator of well-being of the population, the relation between calorie intake and nutritional status is complex and controversial. It emphasised that this requires a different approach in which differences in requirements due to climatic variations, the role inter- and intra-individual differences in the efciency of utilisation of food intake and variations in food preferences have to be explicitly taken into account. The report went on to emphasise that poverty incidence does not provide a complete picture of the state of well being of the population and that in order to capture a fuller picture of the living conditions and well being of the poor, poverty estimates should be supplemented with periodic assessment by region, age, gender and socio-economic characteristics of (a) the size and composition of the poor population; (b) levels of intake of principal nutrients, incidence of malnourishment, anthropometric measurements and activity patterns by age, sex and socio-economic categories and other indicators of nutritional status; (c) indicators of health status in terms of mortality and morbidity, access to and use of health services (public and private) and costs; (d) school enrolment, reach and quality of public education services indicative of educational outcomes; and (e) the state of the living environment reected in density of settlements, living space per head, type of houses, and access to safe drinking water, sanitation, and basic amenities. It is unfortunate that the remit of the Tendulkar Committee was dened narrowly to reviewing alternative
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conceptualisations of poverty, and the associated technical aspects of procedures of measurement and database for empirical estimation, including procedures for updating over time and across states and recommending any changes in the existing procedures of ofcial estimates of poverty. While recognising the multi-dimensionality of poverty, it chose to conne the study of poverty to the dimension of private consumption. There was only a cryptic statement that other dimensions of poverty are discussed in the Lakdawala Committee report without any discussion of the importance of addressing the substantive signicance of these dimensions and the importance of substantive research and analysis on them. It is high time that both academia and the Planning Commission go beyond their preoccupation with rening the basis for determining the normative poverty line and estimating poverty incidence, and shift their focus to implementing the Lakdawala Committee suggestion that the Planning Commission prepare, every ve years, a comprehensive report on the State of Poverty covering all the above aspects. For this purpose, besides using data from the periodic national surveys now being conducted by various ofcial organisations (NSS, National Institute of Nutrition,

National Family Health Survey and the All India Educational Survey), it emphasised the need to commission such special surveys as may be needed to explore the conditions of the poor in greater detail and the importance of encouraging and promoting intensive analytical research to better understand such basic issues (like the concept of undernourishment and minimum requirements for a healthy, active life of individuals, and the relationship between poverty, food intake and undernourishment). It also recommended in-depth studies on the nature and magnitude of poverty among different segments of the poor, especially disadvantaged social groups and people in backward regions; the relation between transient and persistent poverty; and the impact of changing patterns of consumption expenditure among the poor. Needless to say, objective evaluations of the functioning and impact of policies and programmes ostensibly aimed at alleviating various manifestations of poverty should provide key inputs to the preparation of the periodical reports on the state of poverty.
Reference
Srinivasan, T N, P N Radhakrishnan and A Vaidyanathan (1974): Data on Distribution of Consumption Expenditure in India: An Evaluation in Srinivasan and Bardhan (ed.), Poverty and Income Distribution in India: 148-66.

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