Poverty

Of all the people who live below $1 a day, India accounts for 20%. While growth
is considered essential for poverty reduction, it alone is not enough; poverty
reflects other kinds of non-income deprivations as well, and fruits of economic
growth do not always go towards expanding basic services that aid in better
living standards. During 1980-2005, while GDP growth has been accelerating at a
fairly high rate, the decline in poverty has not kept pace (it has declined, but not
at a similarly increasing rate as increase in GDP).

Measurement of poverty in India:

Poverty lines, in some sense, provide the understanding of a basic minimum
standard of living. Poverty ratios are usually affected by the following three
factors:
 Nutrition norm
 Price deflatorused to update the poverty line, and
 Pro-rata adjustment in the number of households in different expenditure
classes to determine the number of households below and above the
poverty line

Since 1993 (after the Lakdawala committee), there is no countrywide poverty

line as such. Poverty lines are defined at the state level, separately for urban and
rural households. An aggregation of these gives the lines we hear of as all-India
lines.

2005 Tendulkar Committee improved upon the Lakdawala committee

methodology, but didn’t really change anything. Just the bundle of consumption
(which was based on 1973 consumption patterns in Lakdawala) was updated to
a 2003 bundle (and at the national level), to reflect changes in consumption
patterns. Differences in estimates arise from the 2 different committees, but the
extent of poverty decline is roughly similar in percentage point terms.

Tendulkar’s estimates are as follows:

Year Poverty Ratio (Rangarajan estimates in bracket)

Rural Urban Total
1993-94 50 32 45
2004-05 42 26 37
2011-12 26 (31) 14 (26) 22 (30)

However, there were complaints that Tendulkar committee had no new

normative content, and was still relying on old methodology of consumption
basketonly(based on calorific value).The Rangarajan Committee (2014)
extended the line to consider (calories + proteins + fat), and also include
expenditure on basic items such as clothing, education, rent, conveyance etc.
Based on this method, the 2011-12 numbers are mentioned in brackets above.
Note that rural poverty is similar, but urban nearly doubles. Overall poverty
estimates also go up significantly.
Inequality

Measures of inequality:
 Gini coefficient: deviation of distribution of income/ consumption among
individuals from equal distribution. Income Gini coefficient was 33.4 in
India in 2011 (41 in USA).
 Human Development Report: Considers 2 indicators- Income Gini
coefficient, and ‘Quintile Income Ratio’, which is ratio of average income
of the richest 20% to the poorest 20% (even the latter is lower in India
than many developed countries)

Trends in inequality in India:

Since the 1990s, India has seen fairly high levels of growth. This growth has
contributed to some poverty reduction, but also to increasing inequality:
 There is strong evidence of divergence in per-capital consumption across
states
 There is significant increase in rural-urban inequalities
 There is also strong evidence of strong increase ininequality within urban
areas too
 Increasing inequality has moderated the effects of growth on poverty
reduction