Poverty in India: Concepts, Measurement and Trends
Manoj Panda Centre for Economic and Social Studies (CESS), Hyderabad
Coverage •
Introduction
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Concepts of Poverty and Poverty Line
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Measurement of Poverty
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Trends in Poverty over Time
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Variations across States and Social Groups
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Inequality: Concept and Measurement
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Some Policy Issues
Introduction India‟s India‟s economic structure has changed dramatically over last 5-6 decades; among the most dynamic economies recently. Benefits of growth not widely spread to various sections in society, reached only marginally to low income groups. Similar experience of other countries too. Question then arose: Can we guarantee to all at least a minimum level of living necessary living necessary for physical and social development of a person? Absolute poverty literature grew out of this question.
Why estimate poverty? Poverty estimates are vital input to design, monitor and implement appropriate anti-poverty policies. Analysis of poverty profiles by regions, socio-economic groups Determinants - factors affecting poverty Relative effects of factors affecting poverty Allocation of resources to different regions and to various poverty reduction programs •
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Precise estimates of poverty neither easy nor universally acceptable. Yet, can act as a broad and reasonably policy guide.
Intellectual genesis of poverty very old Adam Smith, Ricardo, Marx: subsistence wage concept An early empirical work by Dadabhai Naoroji, 1901 Estimated an income level “necessary for “necessary for the bare wants of a human being, to keep him in ordinary good health and decency”. decency”. Estimated cost of food, clothing, hut, oil for lamp, barber and domestic utensils to arrive at „subsistence per „subsistence per head‟. head‟. In the absence of income distribution data, Naoroji compared computed subsistence level with per capita production to draw attention to mass poverty. Remarkable work that parallels an early work on British poverty by Rowntree, 1901.
Poverty is multidimensional Deprivation in income, illiteracy, illiteracy, malnutrition, mortality, mortality, morbidity, morbidity, access to water and sanitation, vulnerability to economic shocks.
Income deprivation is linked linked in many cases to other forms of deprivation, but do not always move together with with others. This discussion focuses on Income poverty. poverty.
Measurement of Poverty (Percentage of Poor) Two basic ingredients in measuring poverty: (1)Poverty Line: definition of threshold income or consumption level (2)Data on size distribution of income or consumption (collected by a sample survey representative of the population)
Poverty Line (PL): Absolute vs. Relative Relative PL defined PL defined in relative terms with reference to level of living of another person; or or,, in relation to an income distribution parameter. parameter. Examples: 50% of mean income or median, mean minus one standard deviation. Absolute PL PL refers to a threshold income (consumption) level defined in absolute terms. Persons below a pre-defined threshold income are called poor.
Indian Poverty Line A minimum level of living necessary for physical and social development of a person. Estimated as: total consumption expenditure level that meets energy (calorie) need of an average person. PL comprises of both food and non-food components of components of consumption. •
Considers non-food expenditure actually incurred corresponding to this total expenditure. •
Difficult to consider minimum non-food needs on an objective basis entirely on •
Relationship Between Calorie Intake and Per Capita Expenditure 3500 y a 3000 d r e 2500 p e k 2000 a t n I 1500 e i r o l 1000 a C a 500 t i p a 0 C r e P
0
100
200
300
400
500
600
700
800
Per Pe r Capita Cons Consumption umption Expe Expenditur nditure e per Month (Rupees)
900
1000
An Example of Size Distribution of Consumption Expenditure MPCE
%Population
0-150 150-200 200-250 250-300 300-340 340-400 400-450 450-500 500-550 550-650 650-800 800-1000 Above 1000 All classes
3.2 4.0 6.5 8.6 10.0 (half of 10% are below poverty line 320) 11.3 8.6 9.2 9.3 11.4 8.9 5.0 4.0 100.0
MPCE: Monthly Per Capita Consumption Expenditure
Poverty Line: Rs. 320 per per capita capita per per month month HCR= 3.2+4.0+6.5+8.6+5.0 = 27.3%
Incidence of poverty Vs. Under-nutrition Classification of Population by Poverty Line and Calorie Norm - Rural India, 1977-78
Below Poverty Line
Above Poverty Line
Total
Below Calorie Norm
45.32
12.47
57.79
Above Calorie Norm
12.31
29.21
42.21
Total
57.63
42.37
100.00
Source: Government of India (1993): Report of Expert Group.
Official PL in India
pdated using an appropriate price index (CPIAL for rural India, CPIIW for urban). A monthly per capita consumption expenditure of Rs. 356 and 539 for rural and urban areas respectively for More than a quarter of India‟s India‟s population remain below PL in 2004-05. 28.3% Rural Absolute no.:
25.7% Urban
27.5% 27.5 % Total
Poverty in India: Changes over time 70 65 Rural HCR
L 60 P w 55 o l e b 50 n o i t 45 a l u 40 p o p 35
Urban HCR
%
30 25 20 0 6 9 1
3 6 9 1
6 6 9 1
9 6 9 1
2 7 9 1
5 7 9 1
8 7 9 1
1 8 9 1
4 8 9 1
7 8 9 1
0 9 9 1
3 9 9 1
6 9 9 1
9 9 9 1
2 0 0 2
Up to mid-1970s fluctuations fluctuations with cycles Since mid-1970s continuous continuous fall Except a few years immediately after start of reforms (early 1990s) Controversies around estimates for 19992000 (under estimates poverty) –
–
5 0 0 2
Data Contamination in 1999-2000 7-Day Recall versus 30-Day Recall NSSO expenditure data collected on 7-day recall period basis during 51st-54th rounds 1318% larger than that from the 30-day recall period basis. This difference is reduced to 3 to 4% in the 55th round. Critics attribute this reduction to mix up of recall periods by respondents affecting comparability with previous large-scale surveys. The 7-day recall period reports more food expenditure and very significant fall in poverty. poverty.
Comparison of Poverty After Reforms Uniform Recall Period 1993-94
2004-05
Rural
37.3
28.3
Urban
32.4
25.7
Total
36.0
27.5
Mixed Recall Period 1999-2000
2004-05
Rural
27.1
21.8
Urban
23.6
21.7
Total
26.1
21.8
Poverty Head Count Ratio: Major Indian States
Poverty By Social Groups: Rural 2004-05 S tate s Andhr a P r ade s h As s am B i har Chhatti s g ar h De l h i Gujar at Har yana Hi mac hal P r ade s h J ammu & Kas hmi r J har k hand Kar natak a Ke r al a Madhya P r ade s h Mahar as htr a Oris s a P unjab Rajas than Tami l Nadu Uttar P r ade s h Uttar ak hand W e s t B e ng al All India
ST 3 0 .5 1 4 .1 5 3 .3 5 4 .7 0 .0 3 4 .7 0 .0 1 4 .9 8 .8 5 4 .2 2 3 .5 4 4 .3 5 8 .6 5 6 .6 7 5 .6 3 0 .7 3 2 .6 3 2 .1 3 2 .4 4 3 .2 4 2 .4 4 7 .2
SC 1 5 .4 2 7 .7 64 3 2 .7 0 .0 2 1 .8 2 6 .8 1 9 .6 5 .2 5 7 .9 3 1 .8 21 2 1 .6 4 2 .8 4 4 .8 5 0 .2 1 4 .6 2 8 .7 3 1 .2 4 4 .8 5 4 .2 2 9 .5 3 6 .8
OB C O THERS 9 .5 4 .1 1 8 .8 2 5 .4 3 7 .8 2 6 .6 3 3 .9 2 9 .2 0 .0 1 0 .6 1 9 .1 4 .8 1 3 .9 4 .2 9 .1 6 .4 1 0 .0 3 .3 4 0 .2 3 7 .1 2 0 .9 1 3 .8 13 1 3 .7 6 .6 2 9 .6 1 3 .4 2 3 .9 1 8 .9 3 6 .9 2 3 .4 1 0 .6 2 .2 1 3 .1 8 .2 1 9 .8 1 9 .1 3 2 .9 1 9 .7 4 4 .8 3 3 .5 1 8 .3 2 7 .5 2 6 .7 1 6 .1
Poverty By Social Groups: Urban 2004-05 S tates Andhra Prades h As s am B i har Chhatti s g arh Del hi Gujarat Haryana Hi machal Prades h J ammu & Kas hmi r J hark hand Karnatak a Keral a Madhya Prades h Maharas htra Ori s s a Punjab Rajas than Tami l Nadu Uttar Prades h Uttarak hand Wes t B eng al
ST 50 4 .8 5 7 .2 4 1 .0 9 .4 2 1 .4 4 .6 2 .4 0 .0 4 5 .1 5 8 .3 1 9 .2 4 4 .7 4 0 .4 6 1 .8 2 .1 2 4 .1 3 2 .5 3 7 .4 6 4 .4 2 5 .7
SC 3 9 .9 8 .6 6 7 .2 5 2 .0 3 5 .8 16 3 3 .4 5 .6 1 3 .7 4 7 .2 5 0 .6 32 3 2 .5 6 7 .3 4 3 .2 7 2 .6 1 6 .1 5 2 .1 4 0 .2 4 4 .9 6 5 .7 2 8 .5
OB C 2 8 .9 8 .6 4 1 .4 5 2 .7 1 8 .3 2 2 .9 2 2 .5 1 0 .1 4 .8 1 9 .1 3 9 .1 24 2 4 .3 5 5 .5 3 5 .6 5 0 .2 8 .4 3 5 .6 2 0 .9 3 6 .6 4 6 .5 1 0 .4
OTHERS 2 0 .6 4 .2 1 8 .3 2 1 .4 6 .4 7 .0 5 .9 2 .0 7 .8 9 .2 2 0 .3 7 .8 2 0 .8 2 6 .8 2 8 .9 2 .9 2 0 .7 6 .5 1 9 .2 2 5 .5 1 3 .0
Poverty Measures Head Count Ratio (HCR), Poverty Gap (PG) and Squared Poverty Gap (SPG) HCR
m
SPG SP G
m
z yi ( ) n i 1 z
PG 1
n
z yi n i z
1
m
2
1
m= no. of poor population, n = total population, z= poverty line, yi =income of i-th person
Alternative Poverty Measures Head Count Ratio (HCR): proportion of total population that falls below poverty threshold income or expenditure. Based on either national PL or dollar-a-day PL. Poverty Gap Index (PGI): unlike (PGI): unlike HCR, it gives us a sense of how poor the poor are. It is equivalent to income gap below PL per head of total population, and expressed as a percentage of the poverty line. Squared Poverty Gap index (SPG): Adds (SPG): Adds the dimension of inequality among the poor to the poverty gap index. For a given value of the PGI, population with greater dispersion of income among poor indicates a higher value for the SPG. Monotonicity Axiom: Not satisfied by HCR Transfer Axiom: Not satisfied by HCR and PGI
Incidence of poverty affected by two factors: (2)Distribution. Distribution. (1)Growth in average income (2) Poverty reduction fast when average income rises and inequality falls. Fluctuations in poverty incidence till early 1970s primarily due to slow per capita income growth. Incidence of poverty started to fall after mid-1970s when there was marked acceleration in per capita GDP growth rate to above 3 per cent.
Lorenz curve: curve: a curve that represents relationship between cumulative proportion of income and cumulative proportion of population in income distribution by size, beginning with the lowest income group. If perfect income equality, Lorenz curve coincides with 45degree line. Gini coefficient: coefficient: a commonly used measure of inequality; ratio of area between Lorenz curve and 45-degree line, expressed as a percentage of area under 45-degree line. m
L
P i (QC i
QC i
)
1
i 1
If perfect equality, equality, Gini coefficient takes value 0 If perfect inequality, equals 1. Internationally, Gini coeff. normallyranges between 0.25 & 0.7
From Household income/expenditure Survey Compute data on each household’s income/expenditure Rank the families from lowest income to highest income. % of Pop. % of Inc. Cumulative Cummulative (Pi) % of Pop. % of Income (QCi) 10 3.3 10 3.5 10 5.3 20 8.6 20 13.3 40 21.9 20 17.0 60 38.9 20 22.7 80 61.6 10 14.6 90 76.2 10 23.8 100 100
Lorenz Curve
Cumulative % of Income
Cumulative % of Population
X=Area of the hatched region Gini coefficient = [X/50]100
Average Annual Growth Rates: Real GDP
Agriculture Industry Service GDP (total) Per Capita GDP
1951-2 to 1981-82 1991-92 2000-01 2002-03 to 1980-81 to 1990- to 1999- to 2006- 2006-07 (Tenth Plan 91 2000 07 Period) 2.6 3.8 3.0 2.5 2.2 5.3 7.0 5.7 7.8 9.1 4.6 6.7 7.9 8.5 9.4 3.6 5.6 5.8 6.9 7.6 1.4 3.4 3.6 5.2 6.0
Neglect of agriculture after economic reforms even as overall economic growth accelerated
Average Annual Growth Rate in Per Per Capita GSDP Arranged by 1993-94 Per Per Capita GSDP 16000
6.0
14000
5.0
12000 4.0
10000 8000
3.0
6000
2.0
4000 1.0
2000 0
b a j n u P
a r t h s a r a h a M
a n a y r a H
t a r a j u G
u d a N l i m a T
h s e d a r P l a h c a m i H
a l a r e K
a k a t a n r a K
Per Per cap capita Incom come 1993-94
h s e d a r P a r h d n A
r i m h s a K d n a u m m a J
l a g n e B t s e W
h s e d a r P a y h d a M
n a h t s a j a R
m a s s A
h s e d a r P r a t t U
Growth Rate 1993-2004
a s s i r O
r a h i B
0.0
Coefficient of Variation in Per Capita GSDP among 16 Major States 0.4000 0.3900 0.3800 0.3700 0.3600 0.3500 0.3400 0.3300 0.3200 0.3100 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 200494
95
96
97
98
99
00
01
02
03
04
05
Urban-Rural Differences in Mean Consumption Expenditure States
Urban MPCE as % of Rural MPCE 1993-94
2004-05
Andhra Pradesh
141.5
173.9
Assam
177.9
194.8
Bihar
142.9
166.9
Chhatishgarh
180.6
232.9
Gujarat
149.8
187.1
Haryana
123.1
132.3
Himachal Pradesh
212.8
174.2
Jharkhand
190.7
232.0
Karnataka
157.2
203.3
Kerala
126.7
127.4
Madhya Pradesh
155.7
205.9
Maharashtra
194.1
202.1
Orissa
183.2
189.7
Punjab
118.0
156.6
Rajasthan
132.0
163.1
Tamil Nadu
149.0
179.4
Uttar Pradesh
141.2
151.2
Uttaranchal
166.7
158.5
West Bengal
169.9
200.0
All India
163.0
188.2
Factors affecting Poverty Poverty depends on per capita household income which in turn affected by employment, wage rate, land productivity, productivity, industrialisation, expansion of service sector and other general growth and distribution factors Special role of per capita agricultural income Employment and real wage rate
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Inflation rate and relative food prices
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Government expenditure Per capita development expenditure expenditure Social sector expenditure
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Indian growth process since 1950s more or less distribution neutral till 1980s. Importance of a critical minimum steady growth in growth in per capita income for poverty reduction. Inequality increased in recent years after reforms. Income elasticity of poverty has poverty has fallen. A given growth will be associated with w ith more limited gains for the poor Higher growth might more than compensate the adverse effect if fall in elasticity is small. Reasons for weak participation participation of poor: limited limited access access to education, land, credit; low agrl growth, underdeveloped infrastructure such as irrigation, roads, electricity in poorer states
Demographic Dividend •
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AS fertility drops, ratio of workers to nonnonworkers rises. Provides an window of opportunity provided potential workers acquire skills and find productive employment About a fourth of poverty reduction could be attributed to demographic factors in India Right economic policies critical, otherwise the scenario could turn out to be demographic liability Dividend for 2-3 decades only since proportion of older population would eventually increase increasing dependency ratio again
Long term scenario for Poverty •
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Long term growth prospects fairly optimistic: India likely to continue among the fasted growing economies, BRIC to dominate world economy India might surpass Japan and Germany in terms of total tota l size of the economy, yet its per capita income would be less than world average for a long time Poverty could be reduced faster provided inequality is under control, labour intensive activities must grow, removal of rigidities in land and labour market critical for reallocation of resources Government can afford to devote more resources for poverty removal programmes: wage employment (NREGA) or self employment type (SJSY).
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