ECONOMIC AND SOCIAL ISSUES (ESI)

CHAPTER
POVERTY ALLEVIATION

SUMMARY SHEET

FOR RBI GRADE B AND NABARD GRADE

A/B 2019

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Contents
1 What is Poverty?................................................................................................................................................... 3
2 Types of poverty ................................................................................................................................................... 3
2.1 Absolute Poverty: ......................................................................................................................................... 3
2.2 Relative Poverty: ........................................................................................................................................... 3
2.3 Situational Poverty: ...................................................................................................................................... 3
2.4 Generational Poverty:................................................................................................................................... 4
2.5 Multidimensional Poverty: ........................................................................................................................... 4
3 Measuring Poverty................................................................................................................................................ 4
4 Identification of poor in India: .............................................................................................................................. 4
5 Committees for Poverty Estimation in India: ....................................................................................................... 5
5.1 National Planning Committee: ..................................................................................................................... 5
5.2 First Planning Commission working group: .................................................................................................. 5
5.3 Y K Alagh Committee (1979): ........................................................................................................................ 5
5.4 Lakdawala Committee (1993):...................................................................................................................... 6
5.5 Tendulkar Committee (2005): ...................................................................................................................... 6
5.5.1 The major changes recommended are: ................................................................................................ 6
5.6 Rangarajan Committee: ................................................................................................................................ 7
5.6.1 Differences between Rangarajan and Tendulkar Committee: ............................................................. 7
5.6.2 Important points from the report are: ................................................................................................. 8
6 World Bank’s Poverty line .................................................................................................................................... 9
7 Global Hunger Index (GHI):................................................................................................................................... 9
7.1 Indicators of GHI: ........................................................................................................................................10
7.2 Composition of the Global Hunger Index (GHI): .........................................................................................11
7.3 How are the GHI scores calculated? ...........................................................................................................11
7.4 GHI Severity Scale: ......................................................................................................................................12
8 Universal Basic Income: ......................................................................................................................................13
8.1 What is it? ...................................................................................................................................................13
9 Poverty related Sustainable Development Goals (SDGs): ..................................................................................13
10 Conclusion: .....................................................................................................................................................14

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1 What is Poverty?
Poverty is a state or condition in which a person or community lacks the financial resources and
essentials to enjoy a minimum standard of life and well-being that's considered acceptable in
society.

2 Types of poverty
Basically, poverty can be divided into two types: Absolute Poverty and Relative Poverty.

2.1 Absolute Poverty:

• Absolute poverty refers to a condition where a person does not have the minimum amount
of income needed to meet the minimum requirements for one or more basic living needs
over an extended period of time.
• The basic needs include food and safe drinking water, shelter, clothing, sanitation facilities,
quality and affordable healthcare and education facilities, access to information.
• This minimum amount of income that is needed to fulfil the basic needs is decided upon by
each country by taking into account various factors. We shall understand this clearly when
we are discussing about the Poverty Line in India.

2.2 Relative Poverty:

• Relative poverty is closely associated with the issues of inequality.
• Relative poverty occurs when people in a country do not enjoy a certain minimum level of
living standards as compared to the rest of the population and so would vary from country to
country, sometimes within the same country.
• Gini-coefficient can be used to measure poverty in the relative sense.

Other Types of Poverty:

2.3 Situational Poverty:

People or families can be poor because of some adversities like earthquakes, floods or a serious
illness. Sometimes, people can help themselves out of this situation quickly if they are given a bit of
assistance, as the cause of their situations was just one unfortunate event.

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2.4 Generational Poverty:
This is when poverty is handed over to individuals and families from generations before them. In
this type, there is usually no escape from it, as people are trapped in its causes and have no access
to tools that will help them get out of it.

2.5 Multidimensional Poverty:

Multidimensional poverty is made up of several factors that constitute poor people’s experience of
deprivation – such as poor health, lack of education, inadequate living standard, lack of income
(as one of several factors considered), disempowerment, poor quality of work and threat from
violence.

3 Measuring Poverty
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 and the proportion of population living
below it is called the poverty ratio.

Poverty line and the poverty ratio have three potential uses:
1. Identification of poor;
2. The allocation of expenditures on anti-poverty programs across regions; and
3. Measuring and tracking poverty over time and across regions.

4 Identification of poor in India:

• In India, identification of poor is done by the State Governments based on information from
Below Poverty Line (BPL) censuses of which the latest is the Socio-Economic Caste Census
2011 (SECC 2011).
• Allocation of expenditures on anti-poverty programs can also be done using instruments
other than the poverty ratio.
• For example, the expenditure on the provision of housing across states can be done
according to the proportion of households without house in the state.
• Universal programs such as those under the Mahatma Gandhi National Rural Employment
Guarantee Act (MGNAREGA) and Sarva Shiksha Abhiyan (SSA) are available to all making the
question of allocation moot.
• This leaves tracking poverty over time and space as the principal objective behind
measurement of poverty.
• The current official measures of poverty are based on the Tendulkar Poverty Line.
• But this line has been controversial with many observers criticizing it as being too low.

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 • The controversies led the previous government to appoint the Rangarajan Committee, which
recommended higher rural and urban poverty lines.

5 Committees for Poverty Estimation in India:

5.1 National Planning Committee:

In 1938, Congress president Subhash Chandra Bose set up the National Planning Committee (NPC)
with Jawaharlal Nehru as chairman and Professor K. T. Shah as secretary for the purpose of drawing
up an economic plan with the fundamental aim to ensure an adequate standard of living for the
masses.

5.2 First Planning Commission working group:

• The concept of the poverty line was first introduced by a working group of the Planning
Commission in 1962 and subsequently expanded in 1979 by a task force.
• The 1962 working group recommended that the national minimum for each household of
five persons should be not less than Rs 100 per month for rural and Rs. 125 for urban at
1960-61 prices.
• These estimates excluded the expenditure on health and education, which both were
expected to be provided by the state.

5.3 Y K Alagh Committee (1979):

• Till 1979, the approach to estimate poverty was traditional i.e. lack of income.
• It was later decided to measure poverty precisely as starvation i.e. in terms of how much
people eat.
• This approach was first of all adopted by the YK Alagh Committee’s recommendation in 1979
whereby, the people consuming less than 2100 calories in the urban areas or less than 2400
calories in the rural areas are poor.
• Now these calorie requirements need some ‘monetary value’ which can be determined by
ascertaining ‘quantity’ of consumption and ‘prices/value’ of that quantity. Data relating to
quantity and value was provided by NSSO survey.
• 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.
• The logic behind the discrimination between rural and urban areas was that the rural people
do more physical work.
• Moreover, an implicit assumption was that the states would take care of the health and
education of the people. Thus, YK Alagh eventually defined the first poverty line in India.

To sum up:

The table below gives the minimum calorie consumption and per capita consumption expenditure
as per the 1979 Planning Commission task force on poverty estimation.

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 Area Calories Minimum consumption expenditure (Rs per capita per
month)
Rural 2400 49.1
Urban 2100 56.7

5.4 Lakdawala Committee (1993):

In 1993, an expert group was constituted to review methodology for poverty estimation, chaired by
DT Lakdawala.

The following were the suggestions made:

• Consumption expenditure should be calculated based on calorie consumption as used by the

Alagh Committee.
• State specific poverty lines should be constructed, and these should be updated using the
Consumer Price Index of Industrial Workers (CPI-IW) in urban areas and Consumer Price
Index of Agricultural Labour (CPI-AL) in rural areas.
• The method of calculating poverty included first estimating the per capita household
expenditure at which the average energy norm is met, and then, with that expenditure as
the poverty line, defining as poor as all persons who live in households with per capita
expenditures below the estimated value.
• 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.

5.5 Tendulkar Committee (2005):

In 2005, another expert group to review methodology for poverty estimation, chaired by Suresh
Tendulkar, was constituted by the Planning Commission to address the three shortcomings of the
previous methods.

5.5.1 The major changes recommended are:

• It adopted Mixed Reference Period in place of Uniform Reference Period.
• A shift away from calorie consumption-based poverty estimation.
• A uniform poverty line basket (PLB) across rural and urban India.
• A change in the price adjustment procedure to correct spatial and temporal issues with price
adjustment.
• Incorporation of private expenditure on health and education while estimating poverty.
• Poverty line was in form of ‘Rs per capita per month’.
• The Committee computed new poverty lines for rural and urban areas of each state.

National Poverty Lines (in Rs per capita per month) for the years 2004-05, 2009-10 and 2011-12:

Year Rural Urban

2004-05 446.7 578.8
2009-10 672.8 859.6

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2011-12 816.0 1000.0

The following table outlines the manner in which the percentage of population below the poverty
line changed after the application of the Tendulkar Committee’s methodology. (For the year 2004-
05)

Committee Rural Urban Total

Lakdawala Committee 28.3 25.7 27.5
Tendulkar Committee 41.8 27.5 37.2

5.6 Rangarajan Committee:

C Rangarajan Committee was Set up By Planning commission in 2012 and submitted report in 2014.

5.6.1 Differences between Rangarajan and Tendulkar Committee:

To understand the recommendations of Rangarajan Committee better, we will study the differences
between the recommendations of Tendulkar Committee and Rangarajan Committee.

Committees Tendulkar Rangarajan

Set up by Planning Commission Planning Commission
Set up in 2005 2012
Submitted report 2009 2014
Poverty estimation method Per capita Expenditure Monthly Expenditure of family
monthly of five
Urban Poverty Line Per Day Per 33 47
Person
Urban Poverty Line Per Month Per 1000 1407
Person
Urban Poverty Line Per Month, 5000 7035
Family of Five Members
Rural Poverty Line Per Day Per 27 32
Person
Rural Poverty Line (Rs) Per month 816 972
Per Person
Rural poverty line (Rs) Per month 4080 4860
Family of five members
BPL (Below Poverty Line) in crore 27 crore 37 crore
Calorie Expenditure Only calorific value in Calorie + Protein + Fat
expenditure
Calories in rural areas 2400 2155
Calories in urban areas 2100 2090
Main Focus areas Only counts expenditure on 1. Food
food, health, education, 2. Non – food items such

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 clothing as education
3. Healthcare
4. Clothing
5. Transport
6. Rent
7. Non-food items that
meet nutritional
requirements.

5.6.2 Important points from the report are:

• The Rangarajan committee estimation is based on an independent large survey of
households by Center for Monitoring Indian Economy (CMIE).
• It has also used different methodology wherein a household is considered poor if it is unable
to save.
• 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 not only takes normative levels for adequate nourishment, clothing, house rent,
conveyance and education, but also considers behaviourally-determined levels of other non-
food expenses.
• The committee has estimated that almost 30 per cent of us were poor in 2011-12. It uses
separate data sets for rural and urban parts.
• The panel computed the average requirements of calories, proteins and fats on the norms
set by the Indian Council for Medical Research in 2010. These are differentiated by age,
gender and activity for all-India rural and urban regions.
• Accordingly, the energy requirement as calculated by Rangarajan is 2,155 kcal per person per
day in rural areas and 2,090 kcal per person per day in urban areas. This is significantly lower
than the 2,400 kcal in rural areas and slightly less than 2,100 kcal in urban areas used by the
earlier Lakdawala panel.
• The reason given is that the age profile and working conditions have changed with time.
• The protein and fat requirements have been estimated on the same lines. These are 48g and
28g per capita per day, respectively, in rural India and 50g and 26g per capita per day in
urban areas.
• According to the report of the committee, the new poverty line should be Rs 32 in rural areas
and Rs 47 in urban areas.

The table given below shows the total number of poor as per both the committees’ estimations.

Committee No. of Rural No. of urban poor Total Percent of poor

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 poor
Rangarajan 260.5 million 102.5 million 363 million 29.5
committee
Tendulkar 216.5 million 52.8 million 269 million 21.9%
Committee
Difference 44 million 49.7 million 93.7 million

The Rangarajan report has added 93.7 million more to the list of the poor assessed last year as per
the Suresh Tendulkar committee formula.

Now the total number of poor has reached 363 million from 269 million in 2011-12.

6 World Bank’s Poverty line

• The approach of poverty estimation by the World Bank is similar to that employed in India
and in most of the developing countries. The World Bank estimates of poverty are based on
the poverty line of US $1.25 per person per day measured at 2005 international price and
adjusted to local currency using PPP (Purchasing Power Parity).
• The international poverty line is worked out as the average of national poverty lines in
poorest fifteen countries (in terms of consumption per capita). For this world bank runs as
‘International Comparison Program’.
• In October 2015, the World Bank updated the international poverty line to $1.90 a day. The
new figure of $1.90 is based on ICP purchasing power parity (PPP) calculations and
represents the international equivalent of what $1.90 could buy in the US in 2011. The new
IPL replaces the $1.25 per day figure, which used 2005 data.

World Bank Poverty Line for India:

Recently World Bank estimation shows that the country’s poverty rate has been reduced from 21.9
per cent to 12.4 per cent for 2011-12. The World Bank data shows that India is overestimating while
counting the number of poor.

7 Global Hunger Index (GHI):

• The Global Hunger Index (GHI) is a tool designed to comprehensively measure and track
hunger at the global, regional, and national levels.
• The International Food Policy Research Institute (IFPRI) calculates GHI scores each year
since 2006 to assess progress and setbacks in combating hunger.
• In the year 2018, IFPRI stepped back from this role. This was taken over by
Welthungerhilfe together with Concern Worldwide.
• Concern Worldwide works with the world's poorest people to transform their lives. It is
an international humanitarian organisation dedicated to tackling poverty and suffering in
the world’s poorest countries.

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 • Welthungerhilfe is one of the largest private aid organisations in Germany,
independent of politics and religion. It was established in 1962, as the German section of
the "Freedom from Hunger Campaign".
• The GHI is designed to raise awareness and understanding of the struggle against
hunger, provide a means to compare the levels of hunger between countries and
regions, and call attention to the areas of the world in greatest need of additional
resources to eliminate hunger.

7.1 Indicators of GHI:

To capture the multidimensional nature of hunger, GHI scores are based on four indicators:

✓ UNDERNOURISHMENT: the share of the population that is undernourished (that is,

whose caloric intake is insufficient).

✓ CHILD WASTING: the share of children under the age of five who are wasted (that is,
who have low weight for their height, reflecting acute undernutrition.

✓ CHILD STUNTING: the share of children under the age of five who are stunted (that is,
who have low height for their age, reflecting chronic undernutrition).

✓ CHILD MORTALITY: the mortality rate of children under the age of five (a reflection of
the inadequate nutrition and unhealthy environments).

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7.2 Composition of the Global Hunger Index (GHI):
Three dimensions Four Indicators Weight Reason for Inclusion
INADEQUATE FOOD UNDERNOURISHMENT 1/3 • Measures inadequate food
SUPPLY supply, an important
indicator of hunger.
• Refers to the entire
population, both children
and adults.
• Used as a lead indicator for
international hunger targets,
including the SDGs.
CHILD WASTING 1/6 • Goes beyond calorie
UNDERNUTRITION STUNTING 1/6 availability, considers
aspects of diet quality and
utilization.
• Children are particularly
vulnerable to nutritional
deficiencies.
• Is sensitive to uneven
distribution of food within
the household.
• Stunting and wasting are
nutrition indicators for the
SDGs
CHILD MORTALITY UNDER-FIVE 1/3 • Death is the most serious
MORTALITY RATE consequence of hunger, and
children are the most
vulnerable.
• Improves the GHI’s ability to
reflect micronutrient
deficiencies.
• Wasting and stunting only
partially capture the
mortality risk of
undernutrition.

7.3 How are the GHI scores calculated?

GHI scores are calculated using a three-step process:

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 1. Values for each of the four component indicators are determined from the available data
for each country. The four indicators are undernourishment, child wasting, child
stunting, and child mortality.
2. Each of the four component indicators is given a standardized score on a 100-point
scale, based on the highest observed level for the indicator globally.
3. Standardized scores are aggregated to calculate the GHI score for each country, with
each of the three dimensions (inadequate food supply, child mortality, a nd child
undernutrition, which is composed equally of child stunting and child wasting) given
equal weight.
4. This calculation results in GHI scores on a 100-point scale, where 0 is the best score (no
hunger) and 100 is the worst. In practice, neither of these extremes is reached. A value
of 0 would mean that a country had no undernourished people in the population, no
children younger than five who were wasted or stunted, and no children who died
before their fifth birthday. A value of 100 would signify that a country’s
undernourishment, child wasting, child stunting, and child mortality levels were each at
approximately the highest levels observed worldwide in recent decades.

7.4 GHI Severity Scale:

The scale below shows the severity of hunger—from low to extremely alarming—associated
with the range of possible GHI scores.

Note: The latest GHI scores and ranking has to be covered for the examination. Kindly refer
EduTap’s monthly current affairs compilation for the updates regarding the latest rankings.

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8 Universal Basic Income:

8.1 What is it?

• India is looking at a radical idea for reducing poverty: free money for everyone—no strings
attached!
• In the recent years, the Ministry of Finance has been exploring how the country can replace
its various welfare programs with a universal basic income, a uniform stipend paid to every
adult and child, poor or rich.
• Guaranteeing all citizens enough income to cover their basic needs would promote social
justice, the survey says, and empower the poor to make their own economic choices.
• It would also be easier to administer than India’s current antipoverty programs, which are
plagued by waste, corruption and abuse.
• Universal basic income is an old idea that is enjoying a revival as governments look to
revamp their safety nets. Finland launched a pilot project this year, and localities in Canada
and the Netherlands have also announced experiments. Voters in Switzerland considered,
and rejected, a minimum-income proposal last year.

9 Poverty related Sustainable Development Goals (SDGs):

• The Sustainable Development Goals (SDGs), otherwise known as the Global Goals, are a
universal call to action to end poverty, protect the planet and ensure that all people enjoy
peace and prosperity.
• On 1 January 2016, the 17 Sustainable Development Goals (SDGs) of the 2030 Agenda for
Sustainable Development with 169 targets — adopted by world leaders in September 2015
at an historic UN Summit — officially came into force.
• Over the next fifteen years, with these new Goals that universally apply to all countries will
mobilize efforts to end all forms of poverty, fight inequalities and tackle climate change
while ensuring that no one is left behind.
• The SDGs are build on the success of the Millennium Development Goals (MDGs) (from
2000-2015) and aim to go further to end all forms of poverty.
• There are 17 Sustainable Development Goals and each goal has specific targets (total 169
targets) to be achieved over the next 15 years.
• The new Goals are unique in that they call for action by all countries, poor, rich and middle-
income to promote prosperity while protecting the planet.
• They recognize that ending poverty must go hand-in-hand with strategies that build
economic growth and addresses a range of social needs including education, health, social
protection, and job opportunities while tackling climate change and environmental
protection.

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Note: The SDG No.1 and 2 are related to poverty and hunger respectively. Kindly make a note of
these for the examination.

The table given below lists all the 17 SDGs:

10 Conclusion:
So we have seen in detail how an important objective of fiscal policy: ‘Reduction in inequalities of
Income and Wealth’ is achieved by coming out with effective poverty alleviation programmes. In
order to come out with such programmes, it is important to understand the concept of Poverty and
what is the condition of India when it comes to Poverty.

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