Measures of Absolute Poverty

1. Poverty line: Poverty line is a hypothetical line based on income or consumption levels that divides the population as people below poverty line and above poverty line. Poverty line indicates the level of purchasing power required to satisfy the minimum needs of a person. In India, Poverty line is based on consumption Expenditure.

       Poverty line divides the population in two groups, one of those, who have enough purchasing power and known as above poverty line and the other group of those people, who do not have much enough purchasing power and known as below poverty line.

2. Head Count Ratio (HCR)

The Head count ratio (HCR) is the proportion of a population that exists, or lives, below the poverty line. The Poverty headcount ratio at national poverty line (percentage of population) in India was last reported at 21.9% in 2011-12.

Poverty – Line Estimation in India:

       In post-Independence, Poverty lines responsibility was given to planning commission. Committees were set up for formulating the definition of poverty line. 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. NITI Aayog as a policy think tank has replaced Planning Commission, which was earlier responsible for calculating the poverty line in India.

According to recent reports, more than a quarter of the population living in rural areas of India is below the poverty line. Out of the total population living in the rural parts of India, 25.7% is living below the poverty line whereas in the urban areas, the situation is a bit better with 13.7% of the population living below the poverty line.

Poverty Line Calculation: Poverty estimation in India is now carried out by NITI Aayog’s task force through the calculation of poverty line based on the data captured by the National Sample Survey Office under the Ministry of Statistics and Programme Implementation (MOSPI).

       Poverty line estimation in India is based on the consumption expenditure and not on the income levels because of the following reasons:

Variation in Income: Income of self-employed people, daily wage laborers etc. are highly variable both temporally and spatially, while consumption pattern are comparatively much stable.

Additional Income: Even in the case of regular wage earners, there are additional side incomes in many cases, which is difficult to take into account.

Data Collection:

In case of consumption-based poverty line, sample-based surveys use a reference period (say 30 days) in which households are asked about their consumption of last 30 days and is taken as the representative of general consumption. Whereas tracing the general pattern of income is not possible.

Poverty Line Basket: The basket of goods and services necessary to satisfy basic human needs is the Poverty Line Basket (PLB).

Poverty Ratio: The proportion of the population below the poverty line is called the poverty ratio or headcount ratio (HCR).

Need for Poverty Estimation

Impact of Welfare Schemes: Poverty estimates are not just important for academic purposes but are also crucial to track the impact and success of various government policies, especially social welfare schemes that are intended to eliminate poverty.

BPL Census is conducted by the Ministry of Rural Development (along with the partnership of state), in order to identify the poor households.

Poverty Elimination Plan: The Poverty estimates in the form of poverty line are used to formulate poor centric poverty elimination plans.

Constitutional Requirement: Poverty estimation paves the way for poverty elimination that in turn prepares the ground for a just and equitable society.

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.

A common method used to estimate poverty in India is based on the income or consumption levels and if the income or consumption falls below a given minimum level, then the household is said to be Below the Poverty Line (BPL).