Poverty in India: Concepts,

Measurement and Trends

Introduction
Indias economic structure has changed
dramatically over last 5-6 decades; among the
most dynamic economies recently
!ene"its o" gro#th not #idely spread to various
sections in society, reached only marginally to
lo# income groups
$imilar e%perience o" other countries too
&uestion then arose: Can #e guarantee to all at
least a minimum level o" living necessary "or
physical and social development o" a person'
()solute poverty literature gre# out o" this
*uestion

+hy estimate poverty'

Poverty estimates are vital input to design, monitor and
implement appropriate anti-poverty policies

(nalysis o" poverty pro"iles )y regions, socio-economic

groups

,eterminants - "actors a""ecting poverty

-elative e""ects o" "actors a""ecting poverty

(llocation o" resources to di""erent regions and to various

poverty reduction programs

Precise estimates o" poverty neither easy nor universally
accepta)le .et, can act as a )road and reasona)ly policy
guide
Intellectual genesis o" poverty very old
(dam $mith, -icardo, Mar%: su)sistence #age concept
(n early empirical #or/ )y ,ada)hai 0aoro1i, 2342
5stimated an income level 6necessary "or the )are #ants
o" a human )eing, to /eep him in ordinary good health
and decency7 5stimated cost o" "ood, clothing, hut, oil
"or lamp, )ar)er and domestic utensils to arrive at
8su)sistence per head
In the a)sence o" income distri)ution data, 0aoro1i
compared computed su)sistence level #ith per capita
production to dra# attention to mass poverty
-emar/a)le #or/ that parallels an early #or/ on !ritish
poverty )y -o#ntree, 2342

Povertyismultidimensional
Deprivationinincome,illiteracy,malnutrition,
mortality,morbidity,accesstowaterandsanitation,
vulnerabilitytoeconomicshocks.
Income deprivation is lin/ed in many cases to
other "orms o" deprivation, )ut do not al#ays
move together #ith others

Measurement o" Poverty
9Percentage o" Poor:
T#o )asic ingredients in measuring
poverty:
92:Poverty ;ine: de"inition o" threshold
incomeor consumption level
9<:,ata on si=e distri)ution o" income or
consumption 9collected )y a sample
survey representative o" the population:
Poverty ;ine 9P;:: ()solute vs -elative
-elative P; de"ined in relative terms #ith
re"erence to level o" living o" another person; or,
in relation to an income distri)ution parameter
5%amples: 54> o" mean income or median, mean
minus one standard deviation
()solute P; re"ers to a threshold income
9consumption: level de"ined in a)solute terms
Persons )elo# a pre-de"ined threshold income
are called poor
Indian Poverty ;ine
( minimum level o" living necessary "or physical
and social development o" a person

5stimated as: total consumption e%penditure level
that meets energy 9calorie: need o" an average
person

P; comprises o" )oth "ood and non-"ood

components o" consumption

Considers non-"ood e%penditure actually incurred

corresponding to this total e%penditure

,i""icult to consider minimum non-"ood needs

entirely on an o)1ective )asis
-elationship !et#een Calorie Inta/e and
Per Capita 5%penditure
0
500
1000
1500
2000
2500
3000
3500
0 100 200 300 400 500 600 700 800 900 1000
Per Capita Consumption 5%penditure per Month
9-upees:
P
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(n 5%ample o" $i=e ,istri)ution o" Consumption 5%penditure
MPC5 >Population
4-254 ?<
254-<44 @4
<44-<54 65
<54-?44 A6
?44-?@4 244 9hal" o" 24> are )elo# poverty line ?<4:
?@4-@44 22?
@44-@54 A6
@54-544 3<
544-554 3?
554-654 22@
654-A44 A3
A44-2444 54
()ove 2444 @4
(ll classes 2444
MPC5: Monthly Per Capita Consumption 5%penditure
Poverty ;ine: -s ?<4 per capita per month
BC-C ?<D@4D65DA6D54 C <E?>
PovertyinIndia:Changesovertime
Fp to mid-23E4s G "luctuations #ith cycles
$ince mid-23E4s G continuous "all
5%cept a "e# years immediately a"ter start o"
re"orms 9early 2334s:
Controversies around estimates "or 2333-<444
9under estimates poverty:
20
25
30
35
40
45
50
55
60
65
70
1
9
6
0
1
9
6
3
1
9
6
6
1
9
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9
1
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7
2
1
9
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5
1
9
7
8
1
9
8
1
1
9
8
4
1
9
8
7
1
9
9
0
1
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9
3
1
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6
1
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0
0
2
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0
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5
%


p
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Rural HCR
Urban HCR
Poverty Measures
HeadCountatio!HC",
Poverty#ap!P#"ands$uared
povertygap!%P#"
n
m
HCR =
Poverty Measures
Head Count atio !HC", Poverty #ap
!P#"and%$uaredPoverty#ap!%P#"
( ) ) (
1
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( )
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=
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SPG
m= no. of poor population n = total
population
!= po"#rt$ lin# $i =in%om# of i&t' p#r(on
(lternative Poverty Measures
Bead Count -atio 9BC-::proportion o" total
population that "alls )elo# poverty threshold income
or e%penditure !ased on either national P; or dollar-
a-day P;
Poverty Hap Inde% 9PHI:: unli/e BC-, it gives us a
sense o" ho# poor the poor are It is e*uivalent to
income gap )elo# P; per head o" total population, and
e%pressed as a percentage o" the poverty line
$*uared Poverty Hap inde% 9$PH:: (dds the
dimension o" ine*uality among the poor to the poverty
gap inde% Ior a given value o" the PHI, population
#ith greater dispersion o" income among poor
indicates a higher value "or the $PH
&onotonicity'(iom:)otsatis*iedbyHC
+rans*er'(iom:)otsatis*iedbyHCandP#I
Incidence o" poverty a""ected )y t#o "actors:
92:Hro#th in average income 9<:,istri)ution
Poverty reduction "ast #hen average income rises
and ine*uality "alls
Iluctuations in poverty incidence till early 23E4s
primarily due to slo# per capita income gro#th
Incidence o" poverty started to "all a"ter mid-23E4s
#hen there #as mar/ed acceleration in per capita
H,P gro#th rate to a)ove ? per cent
;oren= curve: a curve that represents relationship )et#een
cumulative proportion o" income and cumulative proportion
o" population in income distri)ution )y si=e, )eginning #ith
the lo#est income group
I" per"ect income e*uality, ;oren= curve coincides #ith @5-
degree line

Hini coe""icient: a commonly used measure o" ine*uality;
ratio o" area )et#een ;oren= curve and @5-degree line,
e%pressed as a percentage o" area under @5-degree line
I" per"ect e*uality, Hini coe""icient ta/es value 4
I" per"ect ine*uality, e*uals 2
Internationally, Hini coe"" normallyranges )et#een 4<5 J 4E

) (
1
1

=
+ =
m
i
i i i
QC QC P L
From Househol in!ome"e#peniture $ur%e&
'ompute ata on ea!h househol(s in!ome"e#peniture
)an* the +amilies +rom lowest in!ome to hi,hest in!ome-


> o" Pop
9Pi:
> o" Inc Cumulative
> o" Pop
Cummulative
> o" Income
9&Ci:
24 ?? 24 ?5
24 5? <4 A6
<4 2?? @4 <23
<4 2E4 64 ?A3
<4 <<E A4 626
24 2@6 34 E6<
24 <?A 244 244
,oren-Curve
Cumulati"# ) of *opulation
Cumulati"#
) of +n%om#
,=-r#a of t'# 'at%'#. r#/ion
0ini %o#ffi%i#nt = 1,2503100
(verage (nnual Hro#th -ates: -eal H,P

./0.12to
./3413.
./3.132
to.//41
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244414.
to24451
46
2002&03 to
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(4#nt' *lan
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'griculture
2.5 7.3 7.4 2.0
2.2
Industry
0.7 6.4 0.6 6.3
/..
%ervice
8.5 5.6 6./ 3.0
/.8
#DP!total"
7.5 0.5 0.3 5./
6.5
PerCapita#DP
..8 7.8 7.5 0.2
5.4

5#/l#%t of a/ri%ultur# aft#r #%onomi% r#form( #"#n a(
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'verage'nnual#rowthateinPerCapita#%DP
'rrangedby.//71/8PerCapita#%DP
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PercapitaIncome.//71/8 #rowthate.//712448
Coe**iciento*@ariationinPerCapita#%DP
among.5&a9or%tates
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Fa!tors a++e!tin, Po%ert&
Po%ert& epens on per !apita househol in!ome
whi!h in turn a++e!te b& emplo&ment. wa,e rate. lan
prou!ti%it&. inustrialisation. e#pansion o+ ser%i!e
se!tor an other ,eneral ,rowth an istribution
+a!tors
$pe!ial role o+
7
per !apita a,ri!ultural in!ome
7
/mplo&ment an real wa,e rate
7
0n+lation rate an relati%e +oo pri!es
7
1o%ernment e#peniture

Per !apita e%elopment e#peniture

$o!ial se!tor e#peniture

Indian gro#th process since 2354s more or less
distri)ution neutral till 23A4s
Importance o" a critical minimum steady gro#th in per
capita income "or poverty reduction
Ine*uality increased in recent years a"ter re"orms
Income elasticity o" poverty has "allen
( given gro#th #ill )e associated #ith more limited gains
"or the poor
Bigher gro#th might more than compensate the adverse
e""ect i" "all in elasticity is small
-easons "or #ea/ participation o" poor: limited access to
education, land, credit; lo# agrl gro#th, underdeveloped
in"rastructure such as irrigation, roads, electricity in
poorer states
2emo,raphi! 2i%ien

'%*ertilitydrops,ratioo*workerstonon1
workersrises.

Providesanwindowo*opportunityprovided
potentialworkersac$uireskillsand*ind
productiveemployment

'bouta*ourtho*povertyreductioncouldbe
attributedtodemographic*actorsinIndia

ighteconomicpoliciescritical,otherwisethe
scenariocouldturnouttobedemographic
liability

Dividend*or217decadesonlysinceproportion
o*olderpopulationwouldeventuallyincrease
increasingdependencyratioagain
,ongtermscenario*orPoverty
7
Lon, term ,rowth prospe!ts +airl& optimisti!3 0nia li*el& to
!ontinue amon, the +aste ,rowin, e!onomies. 4)0' to
ominate worl e!onom&
7
0nia mi,ht surpass 5apan an 1erman& in terms o+ total
si6e o+ the e!onom&. &et its per !apita in!ome woul be less
than worl a%era,e +or a lon, time
7
Po%ert& !oul be reu!e +aster pro%ie ine7ualit& is uner
!ontrol. labour intensi%e a!ti%ities must ,row. remo%al o+
ri,iities in lan an labour mar*et !riti!al +or reallo!ation
o+ resour!es
7
1o%ernment !an a++or to e%ote more resour!es +or po%ert&
remo%al pro,rammes3 wa,e emplo&ment 89)/1:; or sel+
emplo&ment t&pe 8$5$<;-