31

Trends and Patterns of Poverty in India

B. A. Prakash

31.1 Introduction

High incidence of poverty among the majority of the rural and urban population has been the basic socio-economic problem faced by India since Independence. The main thrust of the economic policies and planning during the last six decades in India has been to reduce poverty. A number of poverty alleviation schemes were implemented by the Union Government since the early 1970s. The official estimates on poverty shows that the poverty ratio which was 55 per cent in 1973–74 fell to 27.5 per cent in 2004–05. Though there had been a decline in the poverty ratio, poverty still remains as the most severe socio-economic problem of the country. More than 30 crore people were living below the poverty line in 2004–05. In this context, we examine the trends and patterns of poverty during the 1980s, 1990s and the first decade of the 21st century. In this chapter, we examine the concepts and methodology of poverty estimation in Section 31.2, trends and patterns of poverty in India in Section 31.3 and poverty estimates of the Planning Commission (PC) Expert Groups (2009) in Section 31.4.

31.2 Poverty: Concepts and Methodology of Poverty Estimation

31.2.1 Poverty: Meaning

Poverty is the denial of opportunity to lead a long, healthy, creative life and enjoy a decent standard of living, freedom, dignity and self-respect and the respect for others (Human Development Report, 1997). It includes not only the inability to have adequate consumption of food and other necessities of daily life, but also the lack of other dimensions of life as education and health. Poverty is a social phenomenon and can be defined in an inclusive sense as consisting of a number of elements: (i) lack of access to or availability of income-earning opportunities, basic health and education, and food security; (ii) lack of adequate shelter, water or sanitation; (iii) lack of employment opportunities; and (iv) gender discrimination. The list is sometimes further enlarged to include lack of participation in civil society, social exclusion, alienation, political instability and conflict.

 

The following are cited in the Human Development Report (2003) as the determinants of poverty in the third world: (i) poor medical facilities (ii) poor educational facilities (iii) geographic isolation (iv) fragile ecologies (v) over dependence on primary commodity exports (vi) rapid population growth (vii) trade policies of the developed countries (viii) gender inequality, and (ix) lack of pure water and sanitation facilities.

31.2.2 Poverty Line Approach

Developing countries define poverty line and estimate the poor population based on the food security method. The poverty line indicates the insufficiency of economic resources to meet basic minimum needs like food. There are three approaches to measure food poverty.

1. Cost of basic needs method: This approach sets the poverty line at the cost of a basic diet for the main age, gender and activity group, plus a few essential non-food items. A survey then establishes the proportion of people living in households with consumption (or sometimes income) below this line. The basic diet may consist of least-expensive foods needed to meet basic nutritional requirements, the typical adult diet in the lowest consumption quintile or an investigator’s notion of a minimal but decent diet. The choice of both the food and the non-food components included is necessarily arbitrary.
2. Food energy method: This method focuses on the consumption expenditure at which a person’s typical food energy intake is just sufficient to meet a predetermined food energy requirement. The dietary energy intake, as the dependant variable, is regressed against household consumption per adult equivalent. The poverty line is then set at the level of the total consumption per person at which the statistical expectation of dietary energy intake exactly meets average dietary energy requirements.
3. Food share method: This method derives the cost of a consumption plan to acquire j ust-sufficient nutrients. If the cost of basic nutrients is a third of the total consumption, the poverty line is fixed at three times that cost.

Among the three approaches, the poverty line in India is prepared based on the food energy method.

31.2.3 Concepts and Methodology Used by the Planning Commission Expert Group (1993) to Estimate Poverty

31.2.3.1 Poverty Line Poverty line serves as a cut-off line for separating the poor from the non-poor, given the size distribution of population by per capita consumer expenditure classes. Population with per capita consumer expenditure levels below the level defined by the poverty line is counted as poor. The data on the size distribution of population by expenditure classes are obtained from the household consumption survey conducted under various National Sample Surveys (NSS) rounds. The poverty line approach has a number of limitations as mentioned in Box 31.2.

31.2.3.2 Poverty Ratio (Headcount Ratio) The ratio of the population below the poverty line to the total population is the poverty ratio, also known as the headcount ratio.

31.2.3.3 Official Poverty Line The poverty line and poverty ratio used for official purposes by the Government of India is based on the methodology suggested by the Planning Commission Expert Group (1993). Based on the methodology, comparable poverty estimates are available for the period from 1973–74 and 2004–05.

31.2.3.4 Calorie Norm The official estimates are based on a calorie norm of 2,400 calories per capita per day for rural areas and 2,100 calories per capita per day for urban areas. The poverty line for the base year 1973–74 has been taken as the per capita expenditure level at which these calorie norms have been met, on an average, for the country as a whole, as per the NSS household consumption expenditure survey for the corresponding year.

31.2.3.5 Poverty Line in the Base Year The Task Force (1979) defined the poverty line as the per capita total consumer expenditure (PCTE) level at which the calorie norms were met on the basis of the all-India consumption basket for 1973–74. This was equivalent to Rs 49.09 and Rs 56.64 per capita per month for rural and urban areas, respectively, at 1973–74 prices.

31.2.3.6 Poverty Line in 2004–05 The poverty line is defined as PCTE which meets the average per capita daily calorie requirement of 2,400 calorie in rural areas and 2,100 calorie in urban areas along with a minimum of non-food expenditure. Based on this, the poverty line in 2004–05 at the all-India level is fixed at the monthly PCTE of Rs 356.30 for rural areas and Rs 538.60 for urban areas.

31.2.3.7 Estimation of Poverty at State Level The Planning Commission’s methodology to estimate state-level poverty implicitly makes the following assumptions:

1. Age, sex and occupation distribution of the population in the states follows the all-India pattern. Hence, calorie requirements per capita are the same in different states.
2. The price structure of the consumption baskets and price trends across the states are identical.

31.2.4 Revised Poverty Line Proposed by the Planning Commission Expert Group (2009) (Suresh D. Tendulkar Committee)

31.2.4.1 Drawbacks of the Existing Poverty Line The Planning Commission Expert Group (2009) has identified the following as the drawbacks of the existing official poverty line:

1. The consumption patterns underlying the rural and urban Poverty Line Baskets (PLBs) remained tied down to those observed more than three decades ago in 1973–74 and hence had become outdated. Given the rise in the living standards resulting from accelerated economic growth since the 1980s, the consumption pattern of the poor has also been changing, but is not reflected in the poverty lines.
2. The crude price adjustment for prices was leading to implausible results such as the proportion of total urban population below poverty line being higher than its rural counterpart in certain major states.
3. The earlier poverty lines assumed that basic social services of health and education would be supplied by the state and hence although the private expenditure on education and health was covered in the base year 1973–74, no account was taken of either the increase in the proportion of these in the total expenditure over time or their proper representation in available price indices.

31.2.5 Major Departures of the PC Expert Group (2009) from the Existing Official Poverty Line

1. We consciously move away from calorie anchor but test for the adequacy of actual food expenditure near the poverty line to ensure certain aggregate nutritional outcomes.
2. We do not discriminate between the rural and urban population and recommend to provide a uniform PLB based in the latest available observed household consumption data to both the rural and the urban populations. This corrects for the outdated PLBs.
3. We suggest a price adjustment procedure that is predominantly based in the same dataset that underlies the poverty estimation and hence corrects for the problems associated with externally generated and population-segment-specific price indices with the outdated price and weight base used so far in the official poverty estimation.
4. We incorporate an explicit provision in price indices for the private expenditure on healthcare and education which has been rising over time and test for their adequacy to ensure certain desirable educational and healthcare outcomes.

31.2.6 Features of the Revised Poverty Line of the PC Expert Group (2009)

1. While acknowledging the multidimensional nature of poverty, the estimates of poverty will continue to be based on the private household consumer expenditure of Indian households as collected by the National Sample Survey Organization (NSSO).
2. The expert group has also taken a conscious decision to move away from anchoring the poverty lines to a calorie-intake norm in view of the fact that the calorie consumption calculated by converting the consumed quantities in the last 30 days as collected by the NSS has not been found to be well correlated with the nutritional outcomes observed from other specialized surveys either over time or across space (i.e. between states or rural and urban areas).
3. The quinquennial NSSs of household consumer expenditure surveys carried out by the NSSO provide the basic dataset for official poverty calculations. For canvassing household expenditure on a recall basis, the NSSO has decided to shift to the Mixed Reference Period (MRP) for all its consumption surveys in future, namely 365 days for low-frequency items (clothing, footwear, durables, education and institutional health expenditure) and 30 days for all the remaining items. This change captures the household consumption expenditure of the poor households on low-frequency items of purchase more satisfactorily than the earlier 30-day recall period. The Expert Group decided to adopt the MRP-based estimates of consumption expenditure as the basis for future poverty lines as against the previous practice of using uniform reference period estimates of consumption expenditure.
4. Underlying consumption poverty line is the reference PLB of household goods and services consumed by those households at the borderline separating the poor from the non-poor. Given an inescapable element of arbitrariness in specifying the numerical nominal level of PLB, the Expert Group considered it desirable to situate recommended reference PLBs in some generally acceptable aspects of the present practice. The estimated urban share of the poor population (described as the headcount ratio or poverty ratio) in 2004–05, namely 25.7 per cent at the all-India level, is generally accepted as being less controversial than its rural counterpart at 28.3 per cent that has been heavily criticized as being too low. In the interest of continuity as well as in view of the consistency with broad external validity checks with respect to nutritional, educational and health outcomes, it was decided to recommend MRP equivalent of urban PLBs corresponding to 25.7 per cent urban headcount ratio as the new reference PLB to be provided to the rural as well as urban population in all the states after adjusting price differentials.
5. Even while moving away from the calorie norms, the proposed poverty lines have been validated by checking the adequacy of the actual private expenditure per capita near the poverty lines on food, education and healthcare by comparing them with normative expenditures consistent with nutritional, educational and health outcomes. Actual private expenditures reported by households near the new poverty lines on these items were found to be adequate at the all-India level in both the rural and the urban areas and for most of the states. It may be noted that while the new poverty lines have been arrived after assessing the adequacy of the private household expenditure on education and healthcare, the earlier calorie-anchored poverty lines did not explicitly account for these. The proposed poverty lines are in that sense broader in scope.
6. It may be noted that although those near the poverty line in urban areas continue to afford the original calorie norm of 2,100 calories per capita per day, their actual observed calorie intake from the 61st Round of the NSS is of 1,776 calories per capita. This actual intake is very close to the revised calorie intake norm of 1,770 per capita per day currently recommended for India by the Food and Agriculture Organization (FAO). The actual observed calorie intake of those near the new poverty line in rural areas (1,999 calories per capita) is higher than the FAO norm.
7. The proposed reference PLB is also situated in the latest available data on the observed consumption patterns from the household consumer expenditure survey of the NSS for the year 2004–05 and takes into account all items of consumption (except transport and conveyance) for construction of price indices. Separate allowance for private expenditure on transport and conveyance has been made in the recommended poverty lines.
8. The proposed price indices are based on the household-level unit values (approximated price data) obtained from the 61st round (July 2004 to June 2005) of the NSS on the household consumer expenditure survey for food, fuel and light, clothing and footwear at the most-detailed level of disaggregation and hence much closer to the actual prices paid by the consumers in rural and urban areas. Price indices for health and education were also obtained from unit-level data from related NSSs. The proposed price indices (Fisher Ideal indices in technical terms) incorporate both the observed all-India and the state-level consumption patterns in the weighting structure of the price indices. For rent and conveyance, the actual expenditure share for these items was used to adjust the poverty line for each state. The recommended price indices take care of most of the criticisms of the earlier population-segment-specific consumer price indices with the outdated base used for updating poverty lines. An added and a significant advantage is that the recommended procedure permits the derivation of new poverty lines and the corresponding headcount ratios for all the states including the north-eastern states. In the judgment of the Expert Group, these advantages outweigh the problem of ignoring the quality differences in the consumption of commodities across households that is involved in equating unit values with approximated prices.
9. The new poverty lines seek to enable rural as well as urban population in all the states to afford the recommended all-India urban PLB after taking due account of within-state rural-urban and inter-state differentials (rural and urban) by incorporating the observed consumer behaviour both at the all-India and at the state levels.
10. The new poverty lines have been generated for all the states including the northeastern states. However, in the absence of adequate data, the expert group has suggested the use of the poverty line of the neighbouring states for union territories.
11. Based on the above approach, the Expert Group (2009) fixed the poverty line at the all-India level at a monthly PCTE of Rs 446.68 for rural areas and Rs 578.80 for urban areas in 2004–05.

31.2.7 Concepts and Data Used in the Study

We have used the poverty line of the Planning Commission Expert Group (1993) and Planning Commission data to examine the trends and pattern of poverty in Section 31.3. The official poverty estimates are based on this. But in Section 31.4, we have presented the revised poverty line and poverty estimates of the Expert Group (2009) (Suresh D. Tendulkar Committee).

31.3 Trends and Patterns of Poverty in India

31.3.1 Aggregate Poverty

In this section, we present the official estimates of the poverty line, poverty ratio and the number of poor people in India between 1973–74 and 2004–05. The estimates are based on the methodology of poverty estimation suggested by the Planning Commission’s Expert Group (1993). Table 31.1 gives the official poverty line for all India and states between 1973–74 and 2004–05. A monthly PCTE of Rs 49.63 for rural areas and Rs 56.96 for urban areas was the poverty line fixed for the year 1973–74. The poverty line for rural and urban areas was revised in the subsequent years based on household consumption surveys of NSSs. The latest poverty estimate for rural areas was Rs 356.30 and urban areas was Rs 538.60 in 2004–05. A state-wise poverty line indicating the monthly PCTE for 1973–74 and 2004–05 is shown in Table 31.2.

The data on poverty suggest that during the 1970s, India remained as a very poor country where majority of the people were poor. Table 31.3 gives the trends in poverty in India between 1973–74 and 2004–05 based on official poverty estimates. The table shows that there had been a steady decline in the poverty ratio in rural and urban areas during the three decades since 1973–74. The poverty ratio fell to 44.8 per cent in 1983, to 36 per cent in 1993–94 and to 27.5 per cent in 2004–05. This suggests that the economic policies, poverty alleviation measures and other steps taken in India were helpful to reduce the incidence of rural and urban poverty since early 1970s. The development achieved with respect to education, public healthcare, rural infrastructure, social services, etc., also contributed to the reduction in poverty. But a noticeable development was that the poverty reduction in the 1990s was higher compared to the 1980s. This suggests that the economic reforms implemented since 1991 had accelerated a process of economic development conducive for poverty reduction.

We may also examine the incidence of poverty in states and union territories in India during the early 1970s (Table 31.4). During the 1970s some of the states in India had very high incidence of poverty. Nearly two-third of the population in Odisha was below poverty line in early 1970s. In states such as Bihar, Madhya Pradesh and West Bengal, more than 60 per cent of the population was poor during early 1970s. On the other hand, the states which had a lower incidence of poverty were Himachal Pradesh and Punjab. More than 32 crores of people in India were poor in the early 1970s, according to official estimates (Table 31.5). Uttar Pradesh had the largest number of poor followed by Bihar and West Bengal in 1973–74.

 

TABLE 31.1 Official Poverty Line in India (Rs Monthly PCTE)

Year	Rural	Urban
1973–74	49.63	56.96
1977–78	56.84	72.50
1983	89.45	117.64
1987–88	115.43	165.58
1993–94	205.84	281.35
1999–2000	327.56	454.11
2004–05	356.30	538.60

 

 

 

 

Reduction in poverty between 1973–74 and 2004–05 was not uniform throughout India (Table 31.4). There was much variation in the rate of poverty reduction among states. Some states achieved substantial reduction in poverty during the above period. The states which achieved rapid poverty reduction were Jammu and Kashmir, Punjab, Kerala, Himachal Pradesh, Haryana, Goa, Delhi and Andhra Pradesh. On the other hand, in spite of the economic development during the last six decades, some of the states have very high incidence of poverty even today (40 per cent or more). The states having very high incidence of poverty are Odisha, Bihar, Chhattisgarh, Jharkhand and Uttarakhand.

 

 

The poverty estimate of 2004–05, indicates that 27.5 per cent of the people in India were below the poverty line (Table 31.4) and the total number of poor people in the country was estimated at 30.17 crores in 2004–05 (Table 31.5). Among the states in India, we can see much variation in the poverty ratio. States like Jammu and Kashmir, Punjab and Himachal Pradesh have lowest ratio of poverty, that is, 10 per cent or less. On the other hand, Odisha has the highest ratio of poverty in India (46.4 per cent). Other states having high incidence of poverty are Bihar, Chhattisgarh, Jharkhand and Uttarakhand.

The states having the highest poverty ratio in India in 2004–05 is given in Box 31.3. The states having the lowest poverty ratio in India in 2004–05 is given in Box 31.4.

31.3.2 Rural Poverty

Due to the lack of ownership of productive assets like land, little employment opportunities outside agriculture, seasonal nature of agricultural employment, dominance of illiterate and unskilled workers, petty production and service activities in rural areas, low wage rate, etc., the incidence of poverty was high in rural areas. High incidence of rural poverty has been a major problem faced by the Indian economy since Independence. Nearly 56 per cent of rural people were poor in the early 1970s. Table 31.6 gives the trends in all India and state-wise rural poverty between 1973–74 and 2004–05. By the early 1970s, West Bengal had a rural poverty ratio of 73 per cent, the highest ratio of poverty in India. Odisha, Bihar and Madhya Pradesh were the states having the second, third and fourth rank with respect to high incidence of poverty during the period. Himachal Pradesh and Punjab were the states having the lowest incidence of poverty during the early 1970s.

According to an official poverty estimate, 26.13 crores of people in India were below the poverty line in 1973–74. Table 31.7 gives the state-wise number of poor persons in rural areas between 1973–74 and 2004–05.

The trends in rural poverty suggest that there had been a decline in rural poverty during the three decades since 1973–74. The rural poverty ratio fell to 45.7 per cent in 1983, 37.3 in 1993–94 and to 28.2 per cent in 2004–05. The states which registered a substantial reduction in rural poverty were Goa, Delhi and Punjab. But in spite of the socioeconomic changes during the last six decades, the rate of poverty was high in states viz., Odisha, Jharkhand and Bihar. The total number of poor people in rural areas in India declined from 26.13 crores in 1973–74 to 22.09 crores in 2004–05 (Table 31.7).

 

 

We may also examine the latest position relating to rural poverty in India. According to the estimate of 2004–05, 28.3 per cent of the rural population in India was poor. But we can notice a considerable difference in the poverty rate among different states. Five states viz., Odisha, Bihar, Jharkhand, Chhattisgarh and Uttarakhand have very high ratio of poverty (more than 40 per cent). Odisha ranks top with respect to the rural poverty in the country (47 per cent). On the other hand, Jammu and Kashmir, Goa, Delhi and Punjab have a low ratio of poverty (below 10 per cent). In terms of the number of poor people, Utter Pradesh ranks top with a poor population of 4.73 crores. The other states having large number of poor people are Bihar, Madhya Pradesh, West Bengal and Maharashtra.

 

 

31.3.3 Urban Poverty

In cities and towns, the poor people are forced to live in slum areas where facilities for a healthy life are absent. Poor housing, lack of availability of drinking water, lack of power, lack of facilities for toilet, poor waste and waste water disposal facilities, poor transport, lack of availability of other public utilities and highly polluted environment are the problems faced by the people in slum areas. Poor people were forced to live in slums due to their inability or lack of money to afford a better house or living environment. Living environments in urban slums are highly polluted also. The migration of unskilled and low skilled workers from rural areas to the urban areas in search of jobs is a major cause for growth of slums in urban areas. Nearly half of the urban population in India was poor during the early 1970s. Table 31.8 gives the trends in all India and state-wise urban poverty between 1973–74 and 2004–05. Kerala had the highest incidence of urban poverty in the country in 1973–74 (63 per cent). The other states having high incidence of poverty (more than 55 per cent) were Uttar Pradesh, Madhya Pradesh and Odisha. On the other hand, the states having low incidence of urban poverty during the early 1970s were Himachal Pradesh, Jammu and Kashmir and Punjab. According to an official poverty estimate, 6 crores of urban people were poor in 1973–74 (Table 31.9). Table 31.9 gives the state-wise number of poor persons in urban areas between 1973–74 and 2004–05.

 

 

We may also examine the trends in urban poverty during the three decades since 1973–74. The urban poverty ratio declined to 40.8 per cent in 1983, to 32.4 per cent in 1993–94 and to 25.7 per cent in 2004–05. Some of the states witnessed substantial decline in urban poverty during the above three decades. The states which registered substantial decline in urban poverty are Assam, Himachal Pradesh, Punjab and Jammu and Kashmir. On the other hand, urban poverty is still a serious issue in states like Odisha, Madhya Pradesh and Chhattisgarh. More than 40 per cent of the urban population in the above states were below the poverty line. A disturbing development is the increase in the number of poor persons in urban areas since the early 1970s. Table 31.9 shows the state-wise growth in the number of poor persons in urban areas. The poor persons in urban areas increased to 7.9 crores in 1983, 7.63 crores in 1993–94 and to 8.08 crores in 2004–05. This indicates the need to take effective measures to contain the growth of urban poverty in India.

 

 

Let us also examine the current situation about the urban poverty in India. The latest estimate on poverty in 2004–05 shows that 25.7 per cent of the urban population was below the poverty line in India. But there is much variation in the poverty ratios of different states. Nearly one-third of the urban population was below the poverty line in states such as Odisha, Madhya Pradesh, Chhattisgarh, Uttarakhand, Rajasthan, Karnataka and Bihar in 2004–05. On the other hand, Assam, Himachal Pradesh, Punjab and Jammu and Kashmir have a low ratio of poverty. Table 31.9 gives the state-wise number of poor persons in urban areas between 1973–74 and 2004–05.

31.4 Poverty in India 2004–05 (Based on the Revised Poverty Line of the PC Expert Group 2009)

We have discussed the revised poverty line of the PC Expert Group (2009) and its features in Section 31.2. Table 31.10 gives the poverty ratio based on the existing official poverty line and the revised poverty line. According to the revised poverty line, the poverty ratio of India was 37.2 per cent in 2004–05. This was 10 per cent higher than the existing poverty ratio. The difference between the existing and the revised rural poverty ratios was 13.5 per cent. But in the case of the urban poverty ratio, there is no change.

Table 31.11 gives the revised poverty line and revised poverty ratio based on the new methodology of estimation of the Expert Group (2009). It is disturbing to note that 41.8 per cent of rural population in India is poor. In Odisha, 61 per cent of the rural population is estimated as poor. In states such as Bihar, Chhattisgarh, Madhya Pradesh and Jharkhand, more than half of the rural population is poor. This is a highly disturbing development about the rural poverty. The revised poverty estimates emphasize the need for giving more focus for poverty alleviation, rural employment generation and rural development.

31.5 Conclusion

During the last three decades, there had been a decline in urban and rural poverty in India. But the reduction in poverty was not uniform throughout the country. States like Jammu and Kashmir, Punjab, Kerala, Himachal Pradesh, Haryana, Goa, Delhi and Andhra Pradesh achieved rapid poverty reduction in the last three decades. On the other hand, in states like Odisha, Bihar, Chhattisgarh, Jharkhand and Uttarakhand, the incidence of poverty is very high. The decadal reduction in the poverty was different. The poverty reduction in the 1990s (post-reform period) was higher compared to the 1980s (pre-reform period). This suggests that the economic reforms had accelerated the process of economic change favourable for poverty reduction. But the recent estimates of poverty are disturbing. The Planning Commission Expert Group (2009), which revised the poverty norms, estimated that 37 per cent of the population in India is poor. The new estimate suggests that 42 per cent of the rural and 26 per cent of the urban people are poor. This highlights the need to give more focus on poverty reduction in the economic policies and planning of the country.

 

 

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