New rule raises number of poor by 100 million

Every third Indian is living below the poverty line, far more than believed earlier, according to the revised estimates of an expert group on the subject, chaired by Suresh Tendulkar, eminent economist and former chairman of the Prime Minister’s Economic Advisory Council.

The committee undertakes a new methodology to calculate the poverty ratio. For 2004-05, this works out to 37.2 per cent of the total population, 10 percentage points more than the earlier estimate of 27.5 per cent.

The new methodology puts the number of poor in 2004-05 at 407.6 million, though the older method, based on calorie intake, had put the number at 30.17 million.

However, even as the new methodology gives a higher estimate of poverty headcount at the all-India level for 2004-05, the extent of poverty reduction between 1993-94 and 2004-05, is much the same from that inferred using the earlier methodology.

The inference being that poverty has declined in India by around eight percentage points between 1993-94 and 2004-05. Using the new methodology, overall poverty stands at 37.2 per cent in 2004-05, down from 45.3 per cent in 1993-94. Earlier estimates also show almost a similar reduction, with the poverty ratio declining to 27.5 per cent in 2004-05 from 36 per cent in 1993-94.

The committee has primarily moved away from calorie intake as the basic criteria and has instead broadened the scope by considering per capita expenditure on commodities and services, which includes categories like health and education.

The report states that the rural poverty ratio has been understated by earlier estimates and the new methodology has led to a significant revision in the earlier Planning Commission rural poverty estimate of 28.3 per cent in 2004-05, to 41.8 per cent for the same year. However, even then, rural poverty has been on the decline since 1993 -94 and considering both the old and the new methodologies, there has been a decline of around 8-9 per cent in the rural poverty ratio between 1993-94 and 2004-05.

The earlier estimates have constantly faced criticisms that the consumption patterns underlying the rural and urban poverty line baskets have remained stagnant for more than three decades, as they followed consumption patterns prevalent in 1973-74 and hence have become outdated.