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Indian Economic Policy

Notes 7.3 Need for Redefining Poverty Line

The debate about redefining poverty has two schools of thought. Among the first school of thought
are those economists who are of the view that attempts at upgrading poverty line from time to time
have followed a wrong methodology which has resulted in developing a false notion that reduction
of poverty is going at a fairly good pace and that by the year 2006-07, as targeted by the Tenth-Plan,
India would be able to reduce poverty to a level of 19.34 percent for the country as whole and this
implies the total number of poor at end of 2006-07 will be 220 million - about 170 million in the rural
areas and 50 million in the urban areas. The Tenth Plan Approach Paper “mandated reduction in the
poverty rate by 5 percentage points during the Tenth Plan and another 10 percentage points during
the Eleventh Plan.” This will still leave more than 11 percent of population, or about 130 million
people, below the poverty line in 2012.” Professor Utsa Patnaik has contested the methodology adopted
for deriving these estimates. A second school of thought includes a group of economists who argue
for redefining the poverty line. Mohan Guruswamy & R. S. Abraham have raised the question of
relative poverty in India since India is expected to be a super-economic power by 2020. It would be
desirable to understand the poverty scenario during the last 30 years or so.

Poverty Scenario in India
The absolute level of poverty is estimated by standardizing the minimum physical quantities of cereals,
pulses, milk, butter etc. for a subsistence level and then multiplying the physical quantities by price
quotations to arrive at a figure of per capita consumer expenditure. It may be noted that as prescribed
by the Indian Council of Medical Research, these physical quantities should lead to the provision of
2,400 calories per capita or the rural areas and 2,100 calories per capita in urban areas. Obviously, the
stipulation of per capita consumer expenditure should result in providing the recommended energy
intake in the form of Required Daily Allowance (RDA). This procedure was accepted by the Planning
Commission in 1969 and poverty line was fixed at ` per capita monthly expenditure at 1960-61 prices.
Dandekar and Rath used the criterion of ` 15 for rural areas and ` 22.5 for urban areas at 1960-61
prices.
Later, the Planning Commission appointed Expert Group under the Chairmanship of Professor
Dr Lakdawala which submitted its report in 1993. The Expert Group estimated a monthly expenditure
of ` 40 for rural and ` 57 for urban areas at 1973-74 prices. The Expert Group used the Consumer
Price Index for Agricultural Labourers (CPIAL) for rural areas and a simply average of Consumer
Price Index for Industrial Worker (CPIIW) and the Consumer Price Index for Non-Manualy Employees
(CPINM) for urban areas. This methodology has been used for updating poverty line.
Methodological Issue

Utsa Patnaik on the basis of National Sample Survey data on per capita monthly expenditure and
calorie intake per day has challenged the poverty estimates of the Planning Commission. Patnaik
criticizes the Planning Commission for only using expenditure group data to arrive at the number of
persons below the poverty line, but just glosses over the caloire intake to ensure that the associated
energy intake meets the calorie norm as the basic criterion for determing the lever of expenditure are
at which this can be ensured. Patnaik mentions :” Thus the current data are being used selectively,
with only the distribution of persons by expenditure classes being used, and the associated energy
intake part being ignored completely ... For example the official price-index adjusted poverty line for
1999-00 for rural areas was ` 328 only and this has been applied to the first and last column of table
21 to read the population below this line which came to 27%. No attention was paid to the fact that at
this expenditure a person could access only 1,890 calories, over 500 calories per day below the RDA
(Required Daily Allowance). “ However, if the norm of 2,400 calories is applied, it is reveled that 74.5
percent of population for rural areas was below the poverty line. Thus, the official method of estimation
poor leaves out 47.5 per cent of total population or around 350 million persons who are actually poor.

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