The percentage of the population living below the poverty line in India decreased to 22% in 2011-12 from 37% in 2004-05, according to data released by the Planning Commission in July 2013.  This blog presents data on recent poverty estimates and goes on to provide a brief history of poverty estimation in the country. National and state-wise poverty estimates The Planning Commission estimates levels of poverty in the country on the basis of consumer expenditure surveys conducted by the National Sample Survey Office (NSSO) of the Ministry of Statistics and Programme Implementation.

The current methodology for poverty estimation is based on the recommendations of an Expert Group to Review the Methodology for Estimation of Poverty (Tendulkar Committee) established in 2005.  The Committee calculated poverty levels for the year 2004- 05.  Poverty levels for subsequent years were calculated on the basis of the same methodology, after adjusting for the difference in prices due to inflation. Table 1 shows national poverty levels for the last twenty years, using methodology suggested by the Tendulkar Committee.  According to these estimates, poverty declined at an average rate of 0.74 percentage points per year between 1993-94 and 2004-05, and at 2.18 percentage points per year between 2004-05 and 2011-12. Table 1: National poverty estimates (% below poverty line) (1993 - 2012)

Year

Rural

Urban

Total

1993 – 94

50.1

31.8

45.3

2004 – 05

41.8

25.7

37.2

2009 – 10

33.8

20.9

29.8

2011 – 12

25.7

13.7

21.9

Source: Press Note on Poverty Estimates, 2011 – 12, Planning Commission; Report of the Expert Group to Review the Methodology for Estimation of Poverty (2009) Planning Commission; PRS. State-wise data is also released by the NSSO. Table 2 shows state-wise poverty estimates for 2004-05 and 2011-12.  It shows that while there is a decrease in poverty for almost all states, there are wide inter-state disparities in the percentage of poor below the poverty line and the rate at which poverty levels are declining. Table 2: State-wise poverty estimates (% below poverty line) (2004-05, 2011-12)

State

2004-05

2011-12

Decrease

Andhra Pradesh

29.9

9.2

20.7

Arunachal Pradesh

31.1

34.7

-3.6

Assam

34.4

32

2.4

Bihar

54.4

33.7

20.7

Chhattisgarh

49.4

39.9

9.5

Delhi

13.1

9.9

3.2

Goa

25

5.1

19.9

Gujarat

31.8

16.6

15.2

Haryana

24.1

11.2

12.9

Himachal Pradesh

22.9

8.1

14.8

Jammu and Kashmir

13.2

10.4

2.8

Jharkhand

45.3

37

8.3

Karnataka

33.4

20.9

12.5

Kerala

19.7

7.1

12.6

Madhya Pradesh

48.6

31.7

16.9

Maharashtra

38.1

17.4

20.7

Manipur

38

36.9

1.1

Meghalaya

16.1

11.9

4.2

Mizoram

15.3

20.4

-5.1

Nagaland

9

18.9

-9.9

Odisha

57.2

32.6

24.6

Puducherry

14.1

9.7

4.4

Punjab

20.9

8.3

12.6

Rajasthan

34.4

14.7

19.7

Sikkim

31.1

8.2

22.9

Tamil Nadu

28.9

11.3

17.6

Tripura

40.6

14.1

26.5

Uttar Pradesh

40.9

29.4

11.5

Uttarakhand

32.7

11.3

21.4

West Bengal

34.3

20

14.3

All Inda

37.2

21.9

15.3

Source: Review of Expert Group to Review the Methodology for Estimation of Poverty (2009) Planning Commission, Government of India; Press Note on Poverty Estimates, 2011 – 12 (2013) Planning Commission, Government of India; PRS. Note: A negative sign before the number in column four (decrease) indicates an increase in percentage of population below the poverty line. History of poverty estimation in India Pre independence poverty estimates: One of the earliest estimations of poverty was done by Dadabhai Naoroji in his book, ‘Poverty and the Un-British Rule in India’.  He formulated a poverty line ranging from Rs 16 to Rs 35 per capita per year, based on 1867-68 prices.  The poverty line proposed by him was based on the cost of a subsistence diet consisting of ‘rice or flour, dhal, mutton, vegetables, ghee, vegetable oil and salt’. Next, in 1938, the National Planning Committee (NPC) estimated a poverty line ranging from Rs 15 to Rs 20 per capita per month.  Like the earlier method, the NPC also formulated its poverty line based on ‘a minimum standard of living perspective in which nutritional requirements are implicit’.  In 1944, the authors of the ‘Bombay Plan’ (Thakurdas et al 1944) suggested a poverty line of Rs 75 per capita per year. Post independence poverty estimates: In 1962, the Planning Commission constituted a working group to estimate poverty nationally, and it formulated separate poverty lines for rural and urban areas – of Rs 20 and Rs 25 per capita per year respectively. VM Dandekar and N Rath made the first systematic assessment of poverty in India in 1971, based on National Sample Survey (NSS) data from 1960-61.  They argued that the poverty line must be derived from the expenditure that was adequate to provide 2250 calories per day in both rural and urban areas.  This generated debate on minimum calorie consumption norms while estimating poverty and variations in these norms based on age and sex. Alagh Committee (1979): In 1979, a task force constituted by the Planning Commission for the purpose of poverty estimation, chaired by YK Alagh, constructed a poverty line for rural and urban areas on the basis of nutritional requirements.  Table 3 shows the nutritional requirements and related consumption expenditure based on 1973-74 price levels recommended by the task force.  Poverty estimates for subsequent years were to be calculated by adjusting the price level for inflation. Table 3: Minimum calorie consumption and per capita consumption expenditure as per the 1979 Planning Commission task force on poverty estimation

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

Source:  Report of the Expert Group on Estimation of Proportion and Number of Poor, 1993, Perspective Planning Division, Planning Commission; PRS Lakdawala Committee (1993): In 1993, an expert group constituted to review methodology for poverty estimation, chaired by DT Lakdawala, made the following suggestions: (i) consumption expenditure should be calculated based on calorie consumption as earlier; (ii) 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; and (iii) discontinuation of ‘scaling’ of poverty estimates based on National Accounts Statistics.  This assumes that the basket of goods and services used to calculate CPI-IW and CPI-AL reflect the consumption patterns of the poor. Tendulkar Committee (2009): In 2005, another expert group to review methodology for poverty estimation, chaired by Suresh Tendulkar, was constituted by the Planning Commission to address the following three shortcomings of the previous methods: (i) consumption patterns were linked to the 1973-74 poverty line baskets (PLBs) of goods and services, whereas there were significant changes in the consumption patterns of the poor since that time, which were not reflected in the poverty estimates; (ii) there were issues with the adjustment of prices for inflation, both spatially (across regions) and temporally (across time); and (iii) earlier poverty lines assumed that health and education would be provided by the State and formulated poverty lines accordingly.[1] It recommended four major changes: (i) a shift away from calorie consumption based poverty estimation; (ii) a uniform poverty line basket (PLB) across rural and urban India; (iii) a change in the price adjustment procedure to correct spatial and temporal issues with price adjustment; and (iv) incorporation of private expenditure on health and education while estimating poverty.   The Committee recommended using Mixed Reference Period (MRP) based estimates, as opposed to Uniform Reference Period (URP) based estimates that were used in earlier methods for estimating poverty.[2] It based its calculations on the consumption of the following items: cereal, pulses, milk, edible oil, non-vegetarian items, vegetables, fresh fruits, dry fruits, sugar, salt & spices, other food, intoxicants, fuel, clothing, footwear, education, medical (non-institutional and institutional), entertainment, personal & toilet goods, other goods, other services and durables. The Committee computed new poverty lines for rural and urban areas of each state.  To do this, it used data on value and quantity consumed of the items mentioned above by the population that was classified as poor by the previous urban poverty line.  It concluded that the all India poverty line was Rs 446.68 per capita per month in rural areas and Rs 578.80 per capita per month in urban areas in 2004-05.  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. Table 4: Percentage of population below poverty line calculated by the Lakdawala Committee and the Tendulkar Committee 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

Source: Report of the Expert Group on Estimation of Proportion and Number of Poor, 1993, Perspective Planning Division, Planning Commission; Report of the Expert Group to Review the Methodology for Estimation of  Poverty, 2009, Planning Commission; PRS The Committee also recommended a new method of updating poverty lines, adjusting for changes in prices and patterns of consumption, using the consumption basket of people close to the poverty line.  Thus, the estimates released in 2009-10 and 2011-12 use this method instead of using indices derived from the CPI-AL for rural areas and CPI-IW for urban areas as was done earlier.  Table 5 outlines the poverty lines computed using the Tendulkar Committee methodology for the years 2004-05, 2009-10 and 2011-12. Table 5: 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

2011-12

816.0

1000.0

Source: Report of the Expert Group to Review the Methodology for Estimation of Poverty (2009) Planning Commission; Poverty Estimates 2009-10 and Poverty Estimates 2011-12, Planning Commission; PRS Rangarajan Committee: In 2012, the Planning Commission constituted a new expert panel on poverty estimation, chaired by C Rangarajan with the following key objectives: (i) to provide an alternate method to estimate poverty levels and examine whether poverty lines should be fixed solely in terms of a consumption basket or if other criteria are also relevant; (ii) to examine divergence between the consumption estimates based on the NSSO methodology and those emerging from the National Accounts aggregates; (iii) to review international poverty estimation methods and indicate whether based on these, a particular method for empirical poverty estimation can be developed in India, and (iv) to recommend how these estimates of poverty can be linked to eligibility and entitlements under the various schemes of the Government of India.  The Committee is expected to submit its report by 2014.


[1] While private expenditure on education and health was covered in the base year 1973-74, no account was taken of either the increase in the proportion of these in total expenditure over time or of their proper representation in available price indices.

[2] Under the URP method, respondents are asked to detail consumption over the previous 30 days; whereas under the MRP method five low-frequency items (clothing, footwear, durables, education and institutional health expenditure) are surveyed over the previous 365 days, and all other items over the previous 30 days.  

There have been some recent developments in the sugar sector, which pertain to the pricing of sugarcane and deregulation of the sector.  On January 31, the Cabinet approved the fair and remunerative price (FRP) of sugarcane for the 2013-14 season at Rs 210 per quintal, a 23.5% increase from last year’s FRP of Rs 170 per quintal.  The FRP of sugarcane is the minimum price set by the centre and is payable by mills to sugarcane farmers throughout the country.  However, states can also set a State Advised Price (SAP) that mills would have to pay farmers instead of the FRP. In addition, a recent news report mentioned that the food ministry has decided to seek Cabinet approval to lift controls on sugar, particularly relating to levy sugar and the regulated release of non-levy sugar. The Rangarajan Committee report, published in October 2012, highlighted challenges in the pricing policy for sugarcane.  The Committee recommended deregulating the sugar sector with respect to pricing and levy sugar. In this blog, we discuss the current regulations related to the sugar sector and key recommendations for deregulation suggested by the Rangarajan Committee. Current regulations in the sugar sector A major step to liberate the sugar sector from controls was taken in 1998 when the licensing requirement for new sugar mills was abolished.  Delicensing caused the sugar sector to grow at almost 7% annually during 1998-99 and 2011-12 compared to 3.3% annually during 1990-91 and 1997-98. Although delicensing removed some regulations in the sector, others still persist.  For instance, every designated mill is obligated to purchase sugarcane from farmers within a specified cane reservation area, and conversely, farmers are bound to sell to the mill.  Also, the central government has prescribed a minimum radial distance of 15 km between any two sugar mills. However, the Committee found that existing regulations were stunting the growth of the industry and recommended that the sector be deregulated.  It was of the opinion that deregulation would enable the industry to leverage the expanding opportunities created by the rising demand of sugar and sugarcane as a source of renewable energy. Rangarajan Committee’s recommendations on deregulation of the sugar sector Price of sugarcane: The central government fixes a minimum price, the FRP that is paid by mills to farmers.  States can also intervene in sugarcane pricing with an SAP to strengthen farmer’s interests.  States such as Uttar Pradesh and Tamil Nadu have set SAPs for the past few years, which have been higher than FRPs. The Committee recommended that states should not declare an SAP because it imposes an additional cost on mills.  Farmers should be paid a uniform FRP.  It suggested determining cane prices according to scientifically sound and economically fair principles.  The Committee also felt that high SAPs, combined with other controls in the sector, would deter private investment in the sugar industry. Levy sugar: Every sugar mill mandatorily surrenders 10% of its production to the central government at a price lower than the market price – this is known as levy sugar.  This enables the central government to get access to low cost sugar stocks for distribution through the Public Distribution System (PDS).  At present prices, the centre saves about Rs 3,000 crore on account of this policy, the burden of which is borne by the sugar sector. The Committee recommended doing away with levy sugar.  States wanting to provide sugar under PDS would have to procure it directly from the market. Regulated release of non-levy sugar: The central government allows the release of non-levy sugar into the market on a periodic basis.  Currently, release orders are given on a quarterly basis.  Thus, sugar produced over the four-to-six month sugar season is sold throughout the year by distributing the release of stock evenly across the year.  The regulated release of sugar imposes costs directly on mills (and hence indirectly on farmers).  Mills can neither take advantage of high prices to sell the maximum possible stock, nor dispose of their stock to raise cash for meeting various obligations.  This adversely impacts the ability of mills to pay sugarcane farmers in time. The Committee recommended removing the regulations on release of non-levy sugar to address these problems. Trade policy: The government has set controls on both export and import of sugar that fluctuate depending on the domestic availability, demand and price of sugarcane.  As a result, India’s trade in the world trade of sugar is small.  Even though India contributes 17% to global sugar production (second largest producer in the world), its share in exports is only 4%.  This has been at the cost of considerable instability for the sugar cane industry and its production. The committee recommended removing existing restrictions on trade in sugar and converting them into tariffs. For more details on the committee’s recommendations on deregulating the sugar sector, see here.