Poverty Line

 

 

---

The Context

 

This note is targeted at queries which arise while we conduct our course with MPs on topics related to Economics, Budget and Governance.

 

Key aspects

   1. Concept & definition of poverty

   2. Absolute and Relative poverty

   3. Criticisms of various definitions and measures

   4. National and International comparisons

 

Requested By

A first time MP from Tamil Nadu

 

Length

his has to be very brief. Approx 500 words (one e mail meesage screne)

 

 

Due date

8th Mar 2008

 

Response

---

 

The poverty threshold, or poverty line, is the minimum level of income deemed necessary to achieve an adequate standard of living. In practice, like the definition of poverty, the official or common understanding of the poverty line is significantly higher in developed nations than in developing countries.

 

Rural Poverty Line in India-- Rs 356.30 Per month

 

Urban Poverty Line in India ---Rs 538.60 Per month

 

Key Source of Data for Poverty In India- estimated by the Planning Commission on the basis of quinquennial (five yearly) large sample surveys on household consumer expenditure conducted by the National Sample Survey Organisation (NSSO)

 

Method for Estimation

 

1) Based on recall of consumption of food and non-food items

2) Uniform Recall Period (URP) consumption-  the respondent is asked to recall all items of consumption in last 30 days (both food and non food)

3) Mixed Recall Period (MRP) consumption-    the respondent is asked to recall items of food consumption in last 30 days and non food items such as clothes and footwear in last 365 days

4) The two sets of estimations of poverty from URP and MRP are not same and are usually not used for comparisons.

 

 

 

The average per capita consumption expenditure for rural and urban population as per NSSO 61st Round (2004-05) is Rs. 558.78 and Rs. 1,052.36, respectively. NSSO data also reveals that rural population on an average spends about 55 per cent of its consumption on food and remaining 45 per cent on non-food items. Similarly Urban population on an average spends about 43 per cent of total consumption on food items and remaining 57 per cent is spent on non-food items.

 

 

The official estimates of the poverty line are based on calorie norm of 2400 per capita per day for rural areas and 2100 per capita per day for urban areas.

 

Current trends in Poverty

 

By Uniform Recall Period (in percent)  - recall all items of consumption in last 30 days ( both food and non food items)

 

Category	1993-94	2004-05
Rural	37.3	28.3
Urban	32.4	25.7
All India	36	27.5

Source Planning Commission

 

 

By Mixed Recall Period (in percent)- recall items of food consumption in last 30 days and non food items such as clothes and footwear in last 365 days

 

 

Category	1999-00	2004-05
Rural	27.1	21.8
Urban	23.6	21.7
All India	26.1	21.8

Source Planning Commission

 

 

Source- Economic Survey 2007-08, Government of India

 

 

 

INTERNATIONAL COMPARISONS

 

Authentic cross-country comparisons of poverty rates cannot be made on the basis of national poverty lines with disparate basis. To provide an international standard for world poverty, the World Bank in 1990 introduced a common international poverty threshold of $1 perday, measured in 1985 purchasing power parity (PPP) exchange rates. The threshold is based on national poverty lines from a sample of developing countries. The implication is that after adjusting for cost of living differences, $1 a day is the average minimum amount required for subsistence in the developing world.

 

The World Bank's definition of the poverty line, for under developed countries, like India, is US$ 1/day/person or US $365 per year. As per this definition, more than 75% of all Indians are, probably, below the poverty line!

 

 

Using a poverty threshold is problematic because having an income marginally above it is not substantially different from having an income marginally below it: the negative effects of poverty tend to be continuous rather than discrete, and the same low income affects different people in different ways. To overcome this problem, poverty indices are sometimes used instead.

 

 

 

References

 

http://indiabudget.nic.in/es2007-08/chapt2008/chap103.pdf

http://mospi.nic.in/compenv2000_appendix%206.htm

http://www.wakeupcall.org/administration_in_india/poverty_line.php