Understanding Poverty in India

Source: This post on Understanding Poverty in India has been created based on article “Is poverty being underestimated in India?” published in The Hindu on 24^th January 2025.

UPSC Syllabus topic: GS Paper 2- Issues relating to Poverty and Hunger.

Context: The article addresses the ongoing debate surrounding poverty estimation in India, especially in light of recent data released by the government.

How has poverty been historically defined in India?

1. From the late 1970s to 2005, poverty was defined by the expenditure required to sustain a minimum calorie diet, with updates every five years based on NSSO data.
2. Initially, NSS estimates closely matched National Accounts, but over time, discrepancies arose.
3. The Tendulkar Committee later revised poverty estimation methods. After 2011-12, the government neither published official poverty estimates nor conducted new surveys, leading to alternative poverty measures such as the multidimensional poverty index.

Has poverty been underestimated in India?

For:

1. Poverty estimates depend on the poverty line and data. Claims of drastic reductions in poverty are questionable due to inconsistencies in methodologies and poverty lines.
2. For example, newer data collection methods, like the modified mixed reference period (MMRP), lead to higher expenditure estimates, which can lower poverty estimates when applied to older poverty lines.

Against:

1. Poverty has drastically reduced over the last two decades due to factors like high GDP growth, flagship government programs, and the National Food Security Act.
2. Using any method, poverty estimates for 2022-23 were close to 10%, and recent data suggest it might now be in single digits.
3. However, defining poverty in broader terms beyond calorie consumption is essential.

What are the issues with HCES data collection and methodology?

For:

1. Over the years, there has been a divergence between NSSO consumption data and National Accounts.
2. Experimenting with recall periods (e.g., seven days for food items, 30 days for others) has made older and newer data incomparable.
3. The NSSO’s current methodology, involving three household visits for better recall, gives higher expenditure estimates but lacks an updated poverty line suited to this data.

Against:

1. The old uniform reference period (URP) approach is outdated, as it fails to capture infrequent expenditures.
2. Modern methods are better suited to reflect broader consumption patterns, such as spending on services.
3. While criticisms exist, the data suggest a significant decline in poverty—closer to 17% or more—since 2011-12.

What does the data reveal about rural and urban poverty?

For:

1. Rural-urban consumption gaps are narrowing, with rural areas showing diversified consumption patterns similar to urban areas.
2. However, the rural-urban classification, based on the 2011 Census, is outdated, as many rural areas are now peri-urban.

Against:

Against:

1. If peri-urban regions are reclassified as urban, urban poverty would likely show a sharper decline.
2. Nevertheless, public policy interventions continue to play a vital role in reducing poverty across both rural and urban areas.

Is there a need for an upward revision of the poverty line?

For:

1. Some studies, such as one by the Foundation for Agrarian Studies using the Rangarajan methodology, estimated poverty at 25% in 2022-23.
2. However, this lacks consensus. A clear and consistent methodology is necessary, but achieving agreement remains challenging.

Against:

1. The UNDP poverty line of $2.15/day estimated poverty at 12.9% in 2019. NITI Aayog’s estimates are also lower than the 25% figure cited.
2. A single, consistent poverty line is essential for accurate measurement.

Are criticisms of the index valid?

For:

1. The UNDP’s framework allows countries to customize their indices.
2. India’s inclusion of additional indicators, such as bank accounts and maternal health, is appropriate for its context. Broadening the basket is a step in the right direction.

Against:

1. The index has limitations. Many indicators, like access to electricity or bank accounts, are permanent improvements, meaning households will not be deprived in the future. This creates a downward bias in poverty estimates.
2. Additionally, the index does not account for income vulnerability, which should be measured.