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Demystifying Indian poverty line

India’s official poverty line — a vital economic statistic — is threatening to snowball into a major political controversy in an election year. HT demystifies the details.

business Updated: Aug 07, 2013 03:20 IST
Gaurav Choudhury

What is a poverty line?

The poverty line defines a threshold income. Households earning below this threshold are considered poor. Different countries have different methods of defining the threshold income depending on local socio-economic needs.

Who brings out the poverty estimates in India?

The Planning Commission releases the poverty estimates in India.

How is it measured?

Poverty is measured based on consumer expenditure surveys of the National Sample Survey Organisation (NSSO). A poor household is defined as the one with an expenditure level below a specific poverty line.

What’s the Indian poverty line?

Earlier, India used to define the poverty line based on a method defined by a task force in 1979. It was based on expenditure for buying food worth 2,400 calories in rural areas and 2,100 calories in urban areas. In 2011, the Suresh Tendulkar Committee defined the poverty line on the basis of monthly spending on food, education, health, electricity and transport. According to this estimate, a person who spends Rs 27.2 in rural areas and Rs 33.3 in urban areas a day are defined as living below the poverty line.

For a family of five that spends less than Rs 4,080 and Rs 5,000 in rural and urban areas respectively are considered below the poverty line. This has been criticised for fixing the poverty line too low. A committee headed by former RBI governor C Rangarjan is working on a new methodology for defining the poverty line. The report is expected next year.

Why has there been so much criticism about the poverty line in India?

According to critics, the government has deliberately kept poverty line low. A low poverty line has enabled government to show that millions have moved out of poverty. This, critics say, is factually incorrect as the definition of poverty line is disputed. They also say that the data lacks statistical rigour and has been released to gain political mileage.

How do other countries define the poverty line?

Economists set a poverty line to fix a threshold income to get a headcount of poor people in a country. Households earning below the threshold, or the poverty line, are considered poor. Different countries have different methods of defining the threshold income depending on local socio-economic needs.

How is poverty measured in Europe?

In most of Europe, a family with a net income of less than 60% of the “median net disposable income” — a broad measure of the national average income net of taxes income — is counted as poor. This would imply that a family in the United Kingdom would be poor if its current net income is less than £250 (about Rs 22,500) a week.

A poverty line “relative” to the national average also gives an idea about the state of inequality. A sharp jump in the income of the richest will set the poverty line higher by pulling up the national average income. This could make the poor appear even poorer even though their incomes may have risen.

How is it measured in the United States?

The USA uses a much simpler method. The poverty line represents the basic cost of food for a family multiplied by three. The threshold level is adjusted for inflation every year. A family is counted as poor if its pre-tax income is below this threshold. In 2011 — the latest year for which data is available — the poverty threshold for a family of four stood at $22,811 (about Rs 11 lakh then).

There were 46 million such poor families accounting for 15% of the US population. Counting the poor, however, isn’t as organised in developing countries such as India, partly because of a bustling cash economy that makes it difficult to capture income data. Instead, policymakers rely on data on family spend on essentials such as food, health and basic utilities like electricity. Economists point out that in least developed and middle income countries in Asia and Africa, consumption expenditure serves as a reliable proxy of income, assuming the poorest of the poor people spend their entire earnings on survival.

How does the Indian poverty scenario compare with African countries?

A comparison shows that India poverty line is abysmally low. For instance, South Africa had three poverty lines — food, middle and upper — and all three were higher than that of India.

The food poverty line in Indian rupees was Rs 1,841 per capita per month in 2010, middle poverty line was of Rs 2,445 and upper poverty line of Rs 3,484. Per capita poverty line of a rural adult Rwandian in Indian terms comes out to be Rs 892 per month, slightly more than Rs 816 for a person in rural India. The poverty line was Rwadan Franc 118,000 and it was based on a national consumption survey done in 2011 at the prices of October 2011. One should not forget that prices of food items in Rwanda are less than in India.