RBI GRADE B 2019

CONCEPT OF POVERTY &

VARIOUS POVERTY EXTIMATION
COMMITTEE
 ECONOMICS & SOCIAL ISSUE – RBI GRADE
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 RBI GRADE B PHASE – II

PAPER – I ECONOMICS & SOCIAL ISSUE

CONCEPT OF POVERTY & VARIOUS POVERTY EXTIMATION

COMMITTEE

What is Poverty and Its Types

Concept of Poverty Line
Committee Formed for Poverty Line
 What is Poverty ??
Poverty is deprivation of those
things that determine the quality of
life, including food, clothing, clean
water, shelter and access to basic
human needs.
The World Bank defines poverty as “the inability to
attain a minimal standard of living”.
It defines poverty by saying:
It is hunger.
It is lack of shelter.
It is being sick and not being able to see a doctor.
It is not having access to school and not knowing
how to read.
It is not having a job, is fear for the future, living
one day at a time.
It is losing a child to illness brought about by
unclean water.
It is powerlessness, lack of representation and MULTI - DIMENSIONAL
freedom
Types of Poverty : According to UNDP Poverty is of Two Types

I. Income Poverty – It is when a family's income Is below poverty

line to meet expenses including food, clothing, clean water, shelter
etc.

II. Human Poverty - It refers to the denial of political, social and

economic opportunities to an individual to maintain a 'reasonable'
standard of living.
 CONCEPT OF POVERTY

Concept of Poverty :- There are two ways to define poverty

Absolute Poverty - It refers to the measure of Poverty by keeping the view
of Per Capita intake of calories and minimum level of consumption

It is when household income is below a certain level, which makes it

impossible for the person or family to meet basic needs of life including food,
shelter, safe drinking water, education, healthcare, etc.

It is refer as Extreme Poverty.

 CONCEPT OF POVERTY

Relative Poverty – It is defined as economic Inequality in the society in which

people live.

Relative poverty is the same thing as inequality. It is a used in richer countries

that have largely eliminated absolute poverty. It describes situations where you
have the basics for human survival but you have significantly less than your
neighbors.

Relative Poverty concept indicates Inequalities in income.

Poverty is viewed in terms of income gap between rich and poor.

Concept of Poverty Line and Poverty Line in India :-
Poverty line is the level of income below which a person is not able to meet its
basic needs. It different across countries and no two countries can have same
line.
World Bank has defined $1.90 per day as international poverty line.

Poverty in India is taken in the sense of Absolute/Income Poverty.

Poverty line is the amount of money needed for a person to meet his basic
needs. It is defined as the money value of the goods and services needed to
provide basic welfare to an individual.
The erstwhile planning commission and now NITI aayog is the nodal agency
for estimation of poverty line in India. It is calculated on the basis of data
collected by NSSO.
Why Economist Needed Poverty Line Concept
Conventionally, poverty is measured by defining a threshold level of expenditure (or income)
required to purchase goods and services necessary to satisfy basic needs at the minimal
socially acceptable level. This threshold level of expenditure is called the poverty line

I. To figure out the extent of Poverty and

II. To measure the number of Poor in the country.

In India Poverty Line has been defined in terms of Food availability.

Poverty Line in India indicates the income level which is just sufficient to buy the basic
minimum quantity of food required.

The Planning commission of India defines Poverty in terms of Nutritional Requirements

2400 Calories Per Person Per Day for Rural Area

2100 Calories for Urban Area
PRACTICE QUESTIONS

Q-1. Consider the Following Statement :-

1. The official data on poverty is made available to the public by the National
Sample Survey Organization (NSSO).
2. It is estimated on the basis of consumption expenditure data collected by
the Planning Commission.

Which of the above statements is/are correct?

a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2
PRACTICE QUESTIONS

Q-2. Which among the following is the method to estimate the poverty
line in India?
(A) Investment method
(B) Capital method
(C) Human method
(D) Income method

Q-3. The calorie requirement is higher in the rural areas because:

(A) they do not enjoy as much as people in the urban areas
(B) food items are expensive
(C) they are engaged in mental work
(D) People are engaged in physical labour
 Y. K . ALGAH Lakdawala
(1977) (1989)
R – 2400 Cal State Specific
U- 2100 Cal Calorie Same

POVERTY LINE ESTIMATES

COMMITTEE

Rangarajan Monthly Per Capita Expenditure

816 (R) ; 1000 (U) Tendulkar (2005)
(2012) Changed Calorie
Moved back to based to Nutrition,
calorie Based health and other
Approach Monthly Exp for a Family of Five Expenditure Based
4860 (R) ; 7035 (U)
Working Group of planning commission, 1962

This was first crated by planning commission to determine desirable minimum level of
expenditure required to make a living.

Recommended ‘national minimum consumption expenditure’ for a household of 5

Rural – Rs 100/ month (Rs 20/ Person)

Urban – Rs 125/ month (Rs 25/ Person)

It excluded Health and educational expenditure on assuming that it is provided by state.

Used recommendation on ‘Balanced diet’ by Indian council of Medical Research.

Task force of 1979, Y. K. Algah
Poverty line of 1962 was used during 1960’s and 1970’s at both National and state level. But it
attracted intense debate for its low figures. In response taskforce under Dr. Y.K. Algah was
created to revisit poverty line.

‘Average calorie requirements‘ were estimated, separately for the all India rural and urban
areas on the recommendation of Nutrition Expert Group. This resulted in different ‘Poverty line
basket’ for urban and rural areas.

Now these calorie requirements needs some ‘monetary value’ which can be determined by
ascertaining ‘quantity’ of consumption and ‘prices/value’ of that quantity.

It was estimated that, on an average, consumer expenditure (food and non-food) of Rs.49.09
per capita per month was associated with a calorie intake of 2400 per capita per day in rural
areas and Rs.56.64 per capita per month with a calorie intake of 2100 per day in urban areas.
This ‘Monthly Per Capita Expenditure’ was termed as poverty line. This poverty line was
used for upcoming years after adjusting for rise in prices.
Expert group 1993 (Lakdawala)
This Committee was formed in 1989 which submitted its report in 1993 and Used Until 2004-
05.

This panel didn’t redefine poverty line and retained mechanism defined by Algah expert
group.

Instead it disaggregated ‘All India poverty line’ to ‘State specific Poverty Line’ for base year
1973-74.
For latter periods these ‘Rural and Urban Poverty lines of states’ were updated by taking into
account
a) Consumer Price Index- Agricultural Labor for ‘Rural state specific poverty line and
b) CPI - Industrial workers for Urban state specific poverty line.

The fallout of the Lakdawala formula was that number of people below the poverty line got
almost double. The number of people below the poverty line was 16 per cent of the population
in 1993-94. Under the Lakdawala calculation, it became 36.3 per cent.
Expert Group 2005 (Tendulkar)

Recognizing that the Rural Poverty line was too low, in 2005 the Planning commission
appointed another committee under the chairmanship of Suresh Tendulkar. The Committee
submitted the report in 2009.

It adopted ‘Mixed Reference Period‘ in place of ‘Uniform reference period‘.

 Tendulkar group changed ‘reference period’ to past one year for 5 nonfood items viz.,
clothing, footwear, durable goods, education and institutional medical expenses.

1st point under Algah committee mentions that it adopted separate PLB for Urban and
rural areas. But Tendulkar committee ended this practice by using a uniform basket (for both
rural and urban).

Poverty line was in form of ‘Rs per capita per month’. 816.0 - Rural 1000.0 - Urban
Expert Group 2005 (Rangrajan)
It was formed under the chairmanship of Rangarajan and submitted its report in June 2014.

It reverted to old system of separate poverty line baskets for Rural and urban areas, which was unified by
Tendulkar group.

Instead of ‘Mixed reference Period’ it recommended ‘Modified Mixed reference period’ in which reference
periods for different items were taken as –
365-days for clothing, footwear, education, institutional medical care, and durable goods,
7-days for edible oil, egg, fish and meat, vegetables, fruits, spices, beverages, refreshments, processed food,
pan, tobacco and intoxicants, and
30-days for the remaining food items, fuel and light, miscellaneous goods and services including non-
institutional medical; rents and taxes.

It preferred to use ‘Monthly expenditure of Household of five’ for the poverty line purpose which came out to
be Rs 4860 in rural areas and Rs. 7035 in urban areas.
It argued that considering expenditure of household is more appropriate than that of individuals. Living together
brings down expenditure and as expenses such as house rent, electricity etc. gets divided into 5 members.
 Tendulkar vs. Rangarajan
Committees Tendulkar C.Rangarajan
Set up by Planning commission Planning commission
Set up in 2005 2012, May
Submitted report 2009 2014, July
Poverty estimation method Monthly per CAPITA Expenditure. Monthly Expenditure of family of five.

Total BPL in Year 2011 27 Crore 37 Crore

Urban poverty line (Rs) Tendulkar C.Rangarajan

per day per person 33 46.90=~47
per person per month 1000* 1407
per family of five, per month 5000 7035*

Rural poverty line (Rs) Tendulkar C.Rangarajan

per day per person 27 32
per person per month 816* 972
per family of five, per month 4080 4860*
Lakdawala Committee (1993) Tendulkar Committee (2004-05) Rangarajan Committee (2012)
The Rangarajan Committee goes back to the idea of
The committee estimated poverty by using basic requirement
Lakdawala committee method of calculating Rural and
of the poor such as housing, clothing, shelter, education,
Urban Poverty Separately.
sanitation, travel expense and health etc., to make poverty
estimation realistic.
The criteria suggested by the The Rangarajan group took the view that the consumption
committee was Calorie intake based basket should contain a food component that satisfied
The committee suggested to do away with the calorie-based
on consumption expenditure. certain minimum nutrition requirements, as well as
criteria.
consumption expenditure on essential non-food item
groups (education, clothing, conveyance and house rent)
The committee also suggested to have a uniform poverty line
besides a residual set of behaviorally determined non-food
across rural and urban India.
expenditure.
Rangarajan expert group report, recommended a monthly
per capita consumption expenditure of RS 972 in rural
areas and RS 1,407 in urban areas as the poverty line at the
all-India level.
The Tendulkar committee stipulated a benchmark daily per
Assuming five members for a family, this will imply a
The committee recommended for capita expenditure of RS 27 and RS 33 in rural and urban areas,
monthly per household expenditure of RS 4,860 in rural
state-specific poverty lines. respectively, and arrived at a cut-off of about 22% of the
areas and RS 7,035 in urban areas.
population below poverty line.
The Rangarajan committee estimated a daily per capita
expenditure of RS 32 and RS 47, in rural and urban areas
respectively as the poverty line, and worked out poverty
line at close to 29.5%.
As per Ladkawala committee the
As per Tendulkar report, the percentage of people living below The Rangarajan expert group estimates that 30.9 percent
percentage of population living below
poverty line in the year 2004-05 : Rural:41.8 Urban: 25.7 Total of the rural population and 26.4 percent of the urban
poverty line in the year 2004-05 :
37.2 population were below the poverty line in 2011-12.
Rural: 28.3% Urban: 25.7% All India:
In the year 2011-12 : Rural:25.7 Urban: 13.7 Total: 21.9 The all-India ratio was 29.5 percent.
27.5%
 Current Status: Arvind Panagariya Task Force

The discussion about Lakdawala Formula, Suresh Tendulkar Committee and Rangarajan
Committee make it clear that defining a poverty line in India has been a controversial issue
since 1970s.

The latest poverty line defined was by Rangarajan Formula. However, this report also did
not assuage the critics. The new NDA Government turned down this report also.
To define the poverty line, The NDA Government had constituted a 14-member task force
under NITI Aayog’s vice-chairman Arvind Panagariya to come out with recommendations for a
realistic poverty line. After one and half years work, this task force also failed to reach a
consensus on poverty line
After one and half years work, this task force also failed to reach a consensus on poverty
line. In September 2016, it suggested to the government that another panel of specialists
should be asked to do this job {if defining poverty line}.
PRACTICE QUESTIONS
Q - 4. Which of the following statement(s) is/are correct regarding the recommendations
of the Tendulkar and Rangarajan Committee formed for the estimation of poverty in
India?
A. The focus areas of the Rangarajan committee is wide as it includes not only the
expenditure on food, clothing, health and education but also other expenditures like
transport, rent, non-food items that meet the nutritional requirements etc.
B. The poverty estimation method of the Tendulkar Committee is ‘Per Capita Expenditure
Monthly’ and that of the Rangarajan Committee is ‘Monthly Expenditure of Family of
Five’
C. As per the estimation of the Rangarajan Committee, the number of poor increased in
comparison to the Tendulkar Committee’s estimation.
D. None of the above
E. All the above