We will look beyond consumption expenditure to estimate poverty: C Rangarajan

Interview with Chairman, Prime Minister's Economic Advisory Council

Prime Minister’s Economic Advisory Council Chairman, C Rangarajan, is heading yet another committee-this time on poverty estimates. This follows the Planning Commission’s estimates of Rs 28.65 per day consumption expenditure as the poverty line cut-off in urban areas and Rs 22.42 in rural areas, stirring a controversy. In an interview with Dilasha Seth, he says his committee would try to go beyond consumption expenditure to calculate poverty. It would also study the models in other countries. Edited excerpts:

Suresh Tendulkar was a reputed economist, known for his work on poverty. Why has the new committee been appointed when his estimates of poverty were already there?
This committee has been appointed due to concern over estimating poverty using the Tendulkar committee’s method. We need to look at how to define and measure poverty. So far, the level of consumption expenditure has been used as a way to estimate poverty. This is based on the basket of goods and services, and estimated using the least possible level to sustain someone. It is adjusted for price increases and consumption patterns every five years.

Does this mean Tendulkar’s methodology would now be junked?
We will see to what extent the Tendulkar committee’s method can, or needs to, be modified. The Tendulkar committee used the method being followed for several decades, which is on the level of consumption expenditure. So, we will see how it can be modified. For example, its approach is based on updating rural consumption data on prevailing prices, while not revising the urban consumption data simultaneously. We will see if this is the right way to do it.

What could be a better method than the one suggested by Tendulkar?
Poverty can be estimated in different ways. First, the absolute method, in which one considers how the economy has changed over time and the number of people living below a certain income level. The other is the relative method, in which you consider the current level of average income and the income distribution in the country. This has been widely used in India. So far, we have only looked at consumption expenditure. Now, we will also look at alternative ways—how to combine the current method with poverty estimation techniques used in other countries.