Reading between the poverty lines

Indian poverty lines go back to Dadabhai Naoroji8217;s 1876 paper on poverty. They have been anchored in a social norm, defined as 8220;the cost of subsistence basket of goods8221; by Naoroji, 8220;an irreducible minimum standard of living8221; by the National Planning Committee NPC of 1938, and 8220;minimum level of living8221; by the Perspective Planning Division PPD of the Planning Commission in 1962.

The NPC and PPD, in defining their poverty line based on real consumption expenditure per capita, had a basket of goods in mind. All definitions, implicitly or explicitly, refer to a minimum per capita nutritional energy requirement in kilocalories per day. But none link the poverty lines rigidly to them.

The PPD paper of 1962 also made two crucial distinctions. The first distinction is between the basket of goods that households are expected to acquire out of their own incomes and the basket comprising mostly of services that the state was to provide. The PPD8217;s poverty line was the value of the former basket, at 1960-61 prices.

The second distinction is between households that are well integrated with the economy8217;s income generation processes and those that are not, for idiosyncratic reasons, such as not having an earner in the household or because they live in a remote area.

Incomes of the first group will, and those of the second group will not, necessarily increase in tandem with the growth of the economy. By PPD8217;s definition of the poverty line, the reduction of the poverty of the first group will be more or less automatic with a rapid growth in income. That of the second group, on the other hand, has to be addressed through income transfers over a period of time.

There8217;s no reason to expect that baskets defined by the three poverty lines would in fact be bought at market prices by households having incomes equal to the poverty lines.

The Lakdawala Committee of 1993, authors of the current official poverty lines, tried both to anchor them rigidly to average energy norms and also ensure that the baskets would indeed be bought by the households. It defined rural and urban poverty lines as levels of household per capita consumption expenditure at which average rural and urban energy norms respectively were met in the distribution of per capita household consumption expenditure and its energy content in the 28th round 1973-74 of NSS.

The consumption baskets bought by the households with per capita expenditures around the poverty lines were chosen as poverty baskets. The average energy norms themselves were derived from energy requirements specified by nutritionists for individuals in various categories of the rural and urban population. The committee recommended that the poverty lines be updated for other years by revaluing the poverty baskets using commodity price indices.

From how they have been constructed, the energy contents of poverty baskets associated with the official poverty lines equal the average energy norms of the base year. But this is irrelevant. First, norms, being averages, don8217;t equal the actual energy requirements of the households that bought the baskets. Second, over the years, the norms of the base year may no longer be relevant and population profiles may change. And with prices changing from what they were in the base year, households on the poverty line may not in fact buy the poverty baskets. The committee also ignored Professor P.V. Sukhatme8217;s point that energy requirements vary between individuals and the daily intake of any individual is not constant. Lastly, NSS data permit direct comparisons of per capita energy intakes of households and the average norm without using an intermediate step.

The current official poverty lines are therefore incoherent, being neither social norms nor having a foundation in nutritional science. They are of limited value in monitoring poverty. It8217;s time to think of new approaches to measuring and analysing poverty.