SPECIAL ARTICLE

basket of 1973-74. The specially constructed state-wise CPIAL in 2004-05 and 2005-06 are given in Table 1.1 and Table 1.2 (p 62) respectively.

For the urban areas, the indices are estimated in a similar manner. The one difference is that while for rural areas, four commodity groups are covered, for urban areas price indices for five groups are covered – (a) food, (b) fuel and light, (c) housing,

(d) clothing, bedding and footwear, and (e) miscellaneous items. The specially constructed state-wise CPIIW in 2004-05 and 2005-06 are given in Table 2.1 and Table 2.2 (p 63) respectively.

The state-specific poverty lines for 2004-05 estimated by the Planning Commission using the expert group method are updated for price inflation. The price inflation between 2004-05 and 2005-06 is measured from the specially constructed price indices of the two years. The poverty lines in

30-day recall period, and (b) the Mixed Recall Period (MRP) consumption distribution of the NSS, in which the consumer expenditure data for five non-food items, namely, clothing, footwear, durable goods, education and institutional medical expenses are collected from 365-day recall period and the consumption data for the remaining items are collected from 30-day recall period. The poverty ratio for the year 2005-06 can be estimated based on only the MRP consumption distribution of the NSS, since the URP consumption data was not collected, and hence not available for this year.

The state-specific poverty ratios, separately in rural and urban areas are estimated from the state-specific consumption distribution and the state-specific poverty lines. The poverty ratios of 2004-05 are the same as those estimated by the Planning Com

mission from the large sample survey

lines for 2005-06 are given in Table 3.1 (p 64) for rural areas and in Table 3.2 (p 64) for urban areas. It may be noted that (a) these 2004-05 price indices have been used by the Planning Commission to estimate the poverty line for the year, and (b) the price indices in 2005-06 have been c onstructed following the the expert group method. The national level poverty ratio in 2005-06 is derived from the national level consumption distribution and the national level p overty line, whereas the national level poverty ratio in 2004-05 as in the official estimate is an average of state-wise poverty.

e xpert group method. These two factors 8 Jammu and Kashmir 2.7 2.0 1,882 460 The state-specific poverty ratios in the

ensure the comparability of the state-9 Jharkhand 40.2 -2,379 628 rural areas in 2004-05 and 2005-06 are

10 Karnataka 12.0 13.7 2,880 780

Estimating the Poverty Ratio in 2005-06

The Planning Commission has estimated two sets of poverty ratios for 2004-05 using (a) the Uniform Recall Period (URP) consumption distribution of the NSS, in which the consumer expenditure data for all the items are collected from

Economic & Political Weekly

EPW

(p 66). The sample sizes are also given in these tables to take a view on the degree of reliability of the state-wise estimates.

The national level poverty ratio and the number of poor in 2004-05 and 2005-06 are summarised in Table 5.1 ( p 66). The Planning Commission, using the expert group method estimated the poverty ratio for the year 2004-05 as

21.8 per cent for the country as a whole. The method followed in this paper yields the poverty ratio in 2005-06 as

20.4 per cent for the country as a whole. This demonstrates the decline in poverty ratio as 1.4 percentage points between 2004-05 and 2005-06. It translates into a decline in the number of poor by 10.7 million over a year between 2004-05

SPECIAL ARTICLE

and 2005-06, despite an increase in the population by 17 million. The rate of decline in the poverty ratio from 2004-05 to 2005-06 works out to 6.4 per cent, which is greater than the trend rate of decline of 2.4 per cent per year witnessed between 1993-94 and 2004-05.

These poverty lines in conjunction with the class distribution of persons in 2005-06 which is MRP consumption based, yield the poverty ratio of the year on a consistent basis. The estimated poverty lines and the poverty ratios are given in Table 5.2.

followed is similar, the procedure is not identical for estimation in 2004-05 and 2005-06. Moreover, these estimates are based on the poverty lines which have been derived from the URP consumption distribution, which have then been applied to the MRP consumption distribution in the two years.

Adjustment for Recall Period Difference

that in the URP-based ones. The decline in the poverty ratio between 2004-05 and 2005-06 becomes also higher, by

1.6 per cent point as against 1.4 per cent point with the original URP-based poverty line. The reduction in the number of poor in the MRP-based estimate b ecomes 13.4 million during this one year period as compared to 10.7 million in the URP-based estimate.

Notes are same as in Table 4.1.

of Rs 49.09 per month in the rural areas and Rs 56.64 per month in the urban areas, and adopted by the expert group) was derived from the URP consumption distribution of 1973-74 (NSS 28th round). The poverty lines used to estimate the poverty ratio in 2004-05 and 2005-06 in the previous section are derived from the poverty lines of 1973-74. Therefore, the poverty estimates of 2004-05 and 2005-06 given in Table 5.1 are based on the poverty lines derived from URP consumption distribution applied to MRP c onsumption distribution.

Ideally, the recall period of the consumption distribution from which (a) the poverty line is derived, and (b) the class distribution of persons is obtained, should be the same. Although MRP-based poverty lines (i e, the poverty lines derived from MRP consumption distribution) do not exist, an approximate estimate of poverty may be worked out from the URP-based poverty lines (i e, the poverty lines derived from URP consumption distribution) and the class distribution of persons by both URP and MRP consumption distribution available for 2004-05.

The (implicit) MRP-based poverty line in 2004-05 may be obtained by applying the estimated URP-based poverty ratio (i e, poverty ratio derived from URP consumption distribution, which inter alia is based on URP-based poverty lines) to the MRP consumption distribution. The URP-based poverty ratios in 2004-05 were 28.3 per cent in the rural areas and 25.7 per cent in the urban areas as estimated by the Planning Commission. Based on these poverty ratios, the poverty lines estimated from the MRP consumption distribution work out to monthly per capita consumption of Rs 384.80 in the rural areas and Rs 579.0 in the urban areas in 2004-05, as compared Rs 356.30 and Rs 538.60 respectively based on the URP consumption distribution. These MRP-based poverty lines of 2004-05 on price updation by the specially constructed CPIAL in the rural areas and CPIIW in the urban areas yield the poverty lines in 2005-06.

thin sample data and compare it with the 2004-05 estimate based on thick sample data. The procedure followed is broadly similar to the expert group method, but it is not identical. This must be borne in mind when comparing the two estimates.

The reduction in the poverty ratio between 2004-05 and 200506 (1.4 or 1.6 percentage points) is significantly higher than the trend rate of decline of 0.8 percentage points observed between 1993-94 and 2004-05 from the estimates made by the Planning Commission. This decline can also be considered significant when

Table 5.2: Poverty Line and Poverty Ratio based on MRP Consumption Distribution

Poverty Line (Rs) Poverty Ratio (%)

Rural Urban Rural Urban Total

november 22, 2008

compared with the target for poverty reduction set at 5 percentage The impact of economic growth on poverty reduction in recent points during the five-year period of the Tenth Plan (2002-07). times, particularly since the 1990s, coinciding with the period of

The way poverty is defined and measured in India makes economic reforms, is surrounded by controversies for several p overty reduction dependent on the rate of growth of income/ r easons. These are not recounted here. But the fact is that the consumption and the pattern of its class distribution. The level of economic growth rate in 2005-06 was 9.4 per cent and this was inequality does not appear to have much impact on the poverty the first time in the history of independent India that the growth situation between the years 2004-05 and 2005-06 as the inequality rate was 9 per cent plus on the back of high growth of 8 per cent in the distribution of per capita consumption, measured by the in the previous two years (8.5 per cent in 2003-04 and 7.5 per cent Lorenz Ratio in the two years remained stable. At the national in 2004-05). Besides, the high growth in 2005-06 was accompalevel, the Lorenz Ratio estimated from the MRP-based per capita nied by an impressive growth of 5.9 per cent in the agriculture consumption of 2004-05 and 2005-06 is 0.277 and 0.278, respec-sector, on the back of an average growth rate of 5 per cent per tively in the rural areas and 0.360 and 0.357, respectively in the year in the previous two years. The ability of such high growth urban areas. In view of this, the decline may be attributed rates in accelerating the rate of poverty reduction should not p rimarily to the growth effect. be lost sight of.

Notes was constructed separately for five quintiles of the 16 In the rural areas in 2005-06, the sample in population. The expert group used the index com-Chhattisgarh consists of 276 households and that

puted for 40th to 60th percentile of the population in Uttarakhand consists of 228 households.

and assumed these indices of 1963-64 as valid for

1960-61. For details see, Chatterjee and Bhattach-

Commission (1993). References

9 The weights of food, fuel and light, clothing and Chatterjee, G S and N Bhattacharya (1974): ‘Betweenthe NSSO in 1972-73 (27th round), 1977-78 (32nd States Variation in Consumer Prices and Per C apita

footwear and miscellaneous in the consumption

round), 1983 (38th round), 1987-88 (43rd round), Household Consumption in Rural India’ in

basket of the 40th to 60th percentile of the popu

1993-94 (50th round), 1999-2000 (55th round) T N Srinivasan and P K Bardhan (eds), Poverty and

lation at national level in 1973-74 (NSS 28th

and 2004-05 (61st round).

Income Distribution in India, Statistical Publishing

round) are 81.28 per cent, 6.15 per cent, 3.72

3 The Planning Commission attempted to do this Society, Indian Statistical Institute, Kolkata.

per cent and 8.85 per cent respectively in the

once in the early 1980s, but the NSS consumer Deaton, Angus (2008): ‘Price Trends in India and Their rural areas.

e xpenditure data in those days was not available Implications for Measuring Poverty’, Economic &

10 The Fisher’s Index in the urban areas is adopted

on an annual basis. Political Weekly, Vol 43, No 6, February 9.

from Minhas et al (1988).

4 For example, Ozler, Datt and Ravallion (1996), Lal, D, R Mohan and I Natarajan (2001): ‘Economic

11 Initially, there were 50 centres in the urban areas

Lal, Mohan and Natarajan (2001), Sen (2000), R eforms and Poverty Alleviation: A Tale of Two

from where the commodity-specific price data

Sen and Himanshu (2004a, 2004b) have estimat- Surveys’, Economic & Political Weekly, March 24.

were collected, which increased to 70 and subse

ed poverty ratios from the thin sample consumer Minhas, B S, L R Jain, S M Kansal and M R Saluja

quently to 78 centres.

expenditure data. Deaton (2008) does not specifi-(1988): ‘Measurement of General Cost of Living cally measure poverty ratio using these data, but for Urban India – All India and Different States’,

12 The weights of food, fuel and light, housing, uses them extensively for poverty related issues. Sarvekshana, Vol XII, No 1, New Delhi, July.

clothing and footwear and miscellaneous in the consumption basket of 40th to 60th percentile of

5 The Task Force on Projection of Minimum Needs Ozler Berk, Gaurav Datt and Martin Ravallion (1996): and Effective Consumption Demand was consti-‘A Data Base on Poverty and Growth in India’, The

the population at national level in 1973-74 (NSS 28th round) are 74.63 per cent, 6.71 per cent, 2.52

tuted under the chairmanship of Y K Alagh in July World Bank, January.

per cent, 2.86 per cent and 13.28 per cent respec

1977. The task force submitted its report in Janu- Planning Commission (1979): Report of the Task Force

tively in the urban areas.

ary 1979. Planning Commission (1979). on Projections of Minimum Needs and Effective 13 In the urban areas, the expert group suggested Consumption Demand, Perspective Planning Divi

6 The task force was set up to outline the methodo

use of simple average of state-specific CPIIW (spe- sion, Planning Commission, Government of India, logy of forecasting the national and regional

cially constructed) and Consumer Price Index of New Delhi, January.

structure and pattern of consumption levels and standards (in the Sixth Plan) taking into consid-

Urban Non-Manual Employees (CPIUNME) to – (1993): Report of the Expert Group on Estimation e stimate and update the state-wise urban poverty of Proportion and Number of Poor, Perspective eration the basic minimum needs of the poor and

lines of 1973-74. The Planning Commission ex- Planning Division, Planning Commission, the effective consumption demand of the non

cluded the CPIUNME and used only the specially G overnment of India, New Delhi, July.

poor. In order to compute the minimum desirable normative consumption for the poor, the task

constructed CPIIW for this purpose. This inciden-Sen, Abhijit (2000): ‘Estimates of Consumer Expenditally is the only change that the Commission made ture and Its Distribution: Statistical Priorities a fter force formulated this quantitative index of

in the recommendations of the expert group. NSS 55th Round’, Economic & Political Weekly,

p overty. The task force defined the poverty line as per capita consumption expenditure level, which

14 At the time of introducing this method, Bihar, Vol XXXV, No 51, December 16, pp 4499-518. meets the average per capita daily calorie require-

Madhya Pradesh and Uttar Pradesh were not Sen, Abhijit and Himanshu (2004a): ‘Poverty and ment of 2,400 kcal in rural areas and 2,100 kcal in

b ifurcated. I nequality in India – I’, Economic & Political Weekly, Vol XXXIX No 38, September 18, pp 4247-63.

urban areas along with the associated quantum of 15 The greater proportion of urban households in non-food expenditure, such as, clothing, shelter, the thin sample of 2005-06 is due to the choice of – (2004b): ‘Poverty and Inequality in India – II: transport, education, healthcare, etc. The aver-the sample frame. It is an integrated survey of Widening Disparities during the 1990s’, Economic

age calorie requirement was calculated from the households and unorganised manufacturing & Political Weekly, Vol XXXIX, No 39, Septemage-sex-activity distribution of the population e nterprises. ber 25, pp 4361-75.

and the associated calorie norm recommended by the Nutrition Expert Group (1968) of the Indian Council of Medical Research (ICMR).

7 The consumption basket is obtained from the NSS consumer expenditure data of the 28th round (1973-74) in which the weight of food and nonfood is 81.28 per cent and 18.72 per cent respectively in the rural areas.

8 The Fisher’s Index is a geometric mean of Laspeyre’s and Paasche’s index. Laspeyre’s index uses base year prices to weigh current year’s consumption whereas Paasche’s index uses current year’s prices to weigh base year consumption. The Fisher’s Index in the rural areas used by the expert group was originally constructed by Chatterjee and Bhattacharya from NSS 18th round (February 1963 to January 1964) consumer expenditure data. The index

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