Do we need new line to assess poverty? Should an expert panel be appointed?

The Rangarajan Committee used alternative methodology, wherein a household is considered poor if it is unable to save

Poverty estimates in India have usually been shrouded in controversy. The recent ones, based on the household consumption expenditure survey for 2022-23, are no exception. SBI Research, economists C Rangarajan and Mahendra Dev, and Surjit Bhalla and Karan Bhasin have made poverty estimates based on the latest survey, using different parameters. 

SBI Research, headed by the State Bank of India’s Group Chief Economic Advisor, Soumya Kanti Ghosh, took the Suresh Tendulkar Committee recommendations for 2011-12 as the base and adjusted it for inflation over the years, and also for free food items, and other goods and services, provided under government schemes. It then concluded that the poverty rate declined significantly during 2022-23, compared to 2011-12.

Bhalla and Bhasin, on the other hand, used the World Bank lines to estimate the poverty rate on the basis of the survey. They found that on the $1.9 per capita per day poverty line on the purchasing power parity (PPP), the poverty rate (extreme poverty) declined from 12.2 per cent in 2011-12 to 2 per cent in 2022-23. The World Bank later revised the poverty line to $2.15 on a PPP basis at 2017 prices, but the two economists took $1.9 as the poverty line because it was at 2011 prices, which closely corresponds to the Tendulkar estimates for 2011-12.

At the $3.2 per capita per day poverty line, which the World Bank uses for lower-middle-income countries such as India, the poverty rate declined from 53.6 per cent in 2011-12 to 20.8 per cent in 2022-23, according to estimates by Bhalla and Bhasin. These estimates did not take into account the free foodgrains supplied by the government to two-thirds of the population and utilisation of public health and education.  

Rangarajan and Dev used the Rangarajan panel line for 2011-12 and adjusted it for 2022-23, estimating the poverty rates to be above those calculated by SBI Research, but both estimates showed decline in poverty rates over the 12-year period.

Calorie to consumption

The Tendulkar Committee, appointed in 2005, shifted away from the calorie consumption-based poverty estimation and based its calculations on consumption of food items, such as cereal, pulses, milk, edible oil, non-vegetarian items, and vegetables, as well as fuel, clothing, footwear, education, medical, entertainment, personal and toilet goods, etc. It based its poverty estimates on the household consumption expenditure survey for 2011-12.

However, its poverty line, which comes to around Rs 27.2 a day per person in rural areas and Rs 33.33 for urban areas for 2011-12, created controversy. Many experts and political parties questioned the methodology. 

In the wake of the criticism, the government appointed another committee, under the chairmanship of Rangarajan, in 2012, which used normative levels of adequate nourishment, clothing, house rent, conveyance, education, and the behavioural determination of non-food expenses. It also considered average requirements of calories, protein, and fats, based on ICMR (Indian Council of Medical Research) norms differentiated by age and gender.

Based on this methodology, the Rangarajan Committee estimated the poverty line at around Rs 32 per person per day in rural areas and around Rs 47 in urban areas for 2011-12. On the basis of these poverty lines, it estimated poverty to be much higher than that of the Tendulkar panel for 2011-12.

The Rangarajan Committee also used alternative methodology, wherein a household is considered poor if it is unable to save.

New expert panel needed?

So, should an expert panel be appointed to come out with new poverty lines in reference to the new consumption expenditure survey?

Meanwhile, the Niti Aayog estimated the multidimensional poverty rate for 2015-16 and 2019-21, based on indicators such as nutrition, child and adolescent mortality, maternal health, years of schooling, drinking water, housing, electricity, assets, bank account, etc. It found that the poverty rate declined significantly to nearly 15 per cent in 2019-21, from nearly 25 per cent in 2015-16. 

Rangarajan tells Business Standard that appointing another committee, by itself, does not serve the purpose, because the committee headed by him discussed multiple indicator approaches, too. “But we preferred the consumption expenditure survey route better than the multiple indicator approach,” he says.

The best way, according to him, is to look at both the approaches — household consumption expenditure survey and multi-dimensional index — to arrive at poverty figures. “Each has its own merits.”

However, he says one can also look at the international experience. “After all, the World Bank came out with the poverty line of $2.15 per person per day on a purchasing power parity basis. How did they get that number? They are applying that number across all countries.”

Choosing the base

Pronab Sen, chairperson of the Standing Committee on Statistics, says there should be new poverty lines, because the latest consumption expenditure survey is a different exercise from earlier ones. “The questionnaire is different, the number of items has gone up hugely,” he points out.

Sen, a former chief statistician, says earlier surveys were based on one visit to each household, but the latest one is based on three visits. “There is no guarantee that the same person will answer the questions in all three visits. So, you have to do it all over again. You have to set up a committee to go into the issues and decide the poverty line all over again,” he says. 

When asked whether a new committee should take the Tendulkar panel report as the base report or the one by Rangarajan, Sen says it should base it on the former, or else there would be serious issues of non-comparability.

Former chief statistician TCA Anant says there is enough evidence to suggest that the basic calorie norm is an inadequate measure because it only looks at the consumption of cereals. The composition of food production has changed enormously, he says, adding that it would be better to say that “that poverty” is over and finish that debate.

“There is a set of people hung up on that debate. Till you don’t admit that it has been solved, you won’t move ahead,” says Anant.

In fact, the Niti Aayog report on multi-dimensional poverty is an attempt at addressing that problem. “By all means, create a new poverty measure. Nobody says that we have become a rich country. We are still a poor country. Identify dimensions on which we are poor, rather than going around in circles debating how poor we are now than we were in 1977. Accept that progress has been made and move on,” says Anant.

Role of inflation

Ghosh, who authored the SBI Research note on poverty estimates, says any new poverty line would show a lower rate than estimated by his research note.

“We have taken a higher inflation rate than what was given by the NSSO (National Sample Survey Office) over this period. The NSSO has taken CAGR (compound annual growth rate), and we have computed it based on yearly inflation data. Our estimates are conservative,” he emphasises.

There is no harm, says Ghosh, in updating the Tendulkar poverty line. “A committee may be set up to create a new poverty line after the Census exercise is over.” He points out that the poverty rates on the basis of the consumption expenditure survey and multi-dimensional index complement each other.

“They are not substitutes,” says Ghosh.