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Is Poverty Being Underestimated in India?

Syllabus:

GS – 3- Poverty estimation, Human development , economic development

Focus :

The article critically examines whether poverty in India is being underestimated by exploring the challenges with poverty definitions, methodologies, and data collection practices. It analyzes urban-rural poverty trends, critiques multidimensional poverty indices, and discusses the need for a clear methodology for poverty line estimation, focusing on recent debates and survey data.

Introduction: The Context of Poverty Measurement in India

• India recently released the 2023-24 Household Consumption Expenditure Survey (HCES),sparking debates about poverty trends.
• Policymakers, researchers, and academics are questioning the accuracy and comparability of poverty data.
• Key issues include data unavailability, changing methodologies, and varying definitions of poverty.

Understanding Poverty: Historical Context and Evolving Definitions

• 1970s-2005 Period:
  • Poverty was measured by estimating expenditure required to sustain a minimum calorie diet.
  • Data from the National Sample Survey Office (NSSO) was used, and estimates were consistent with national accounts.
• Post-2005 Developments:
  • The divergence between NSSO data and National Accounts began to raise concerns.
  • The Tendulkar Committee redefined poverty, incorporating mixed recall periods (MRP).
  • Multidimensional poverty indices gained prominence, broadening poverty definitions.
  • New methodologies led to claims of drastic poverty reductions, but the results are contentious due to the reliance on different poverty lines.

Recent Trends in Poverty: The Debate Over Declining Rates

• Reduction in Poverty:
  • Over the last two decades, poverty has significantly declined, driven by:
    • High GDP growth.
    • Flagship welfare programs by the Union and State governments.
    • Improved public delivery systems.
    • National Food Security Act, benefiting nearly 80 crore people.
  • Estimates:
    • Rangarajan’s 2022-23 survey suggests poverty near 10%.
    • Recent HCES data indicates further decline, potentially into single digits.
  • Concerns Over Estimations:
    • Poverty reduction claims depend heavily on the choice of poverty line and data sets.
    • Tendulkar and Rangarajan methodologies produce varying figures, though trends show consistent declines (~17%-18% reduction over decades).

Challenges in Data Collection and Methodology

Divergence Between NSSO and National Accounts:

• Key issues include inconsistent recall periods (7-day, 30-day, and 365-day reference periods).
• Changes in methodology, such as mixed and modified mixed reference periods, complicate comparisons.

Impact of Methodology on Poverty Estimates:

• Modified recall periods result in higher expenditure reporting, leading to lower poverty estimates when using older poverty lines.
• The NSSO’s recent practice of visiting households in multiple sittings improves data accuracy but introduces new challenges for trend analysis.

Lack of a New Poverty Line:

• Few researchers have proposed a poverty line aligning with new NSSO methodologies, leaving a critical gap in policy and research.

Rural-Urban Consumption Convergence:

• Data shows a narrowing gap between rural and urban consumption patterns.
• Rural areas are increasingly resembling peri-urban or urban areas in terms of diversity in consumption.

Challenges in Defining Rural and Urban Areas:

• Current definitions are outdated, based on the 2011 Census.
• A reclassification of peri-urban areas could reveal faster urban poverty reductions.

Debates on Poverty Line Revision

• The Foundation for Agrarian Studies estimated poverty at 25% using Rangarajan’s methodology for 2022-23.
• However, UNDP’s $2.15/day poverty line placed India’s poverty at 12.9% in 2019.
• Discrepancies highlight the urgent need for a unified methodology.
• Need for Government-Endorsed Standards:Researchers advocate for a clear, government-backed poverty line that can be consistently applied to updated data sets.

Multidimensional Poverty Index (MPI): Validity and Criticism

• India’s MPI vs. UNDP’s MPI:
  • The UNDP’s MPI includes 10 indicators, while India’s version includes 12, adding bank accounts and maternal health.
  • Broader indicators align better with India’s socioeconomic context.
• Criticism of MPI Indicators:
  • Some indicators, such as access to electricity or bank accounts, are static and unlikely to show deprivation once achieved.
  • The index may not fully capture the dynamic nature of poverty.
• Strengths and Weaknesses:
  • MPI captures multidimensional aspects of deprivation but may underestimate poverty trends due to its reliance on static indicators.

Policy Implications and Future Directions

• A balanced approach combining traditional consumption-based measures with multidimensional indices is necessary.
• Frequent updates to poverty lines and methodologies are essential to reflect changing consumption patterns.
• Enhanced survey methods, such as multiple household visits, should be institutionalized.
• Greater consistency in reference periods will improve comparability across datasets.
• Continued investment in welfare programs and delivery systems is critical to sustaining poverty reduction.
• Special attention should be paid to emerging vulnerabilities in peri-urban and rural areas.

Conclusion: Bridging the Gaps in Poverty Estimation

• The debate on poverty in India underscores the complexities of measurement, data collection, and methodology.
• While poverty has undeniably declined, varying estimates highlight the need for a unified framework.
• Addressing these gaps will ensure more accurate assessments and effective policymaking.

Associated Article

https://universalinstitutions.com/poverty-and-inequality/

 Mains UPSC Question GS 3

Discuss the challenges in poverty estimation in India, focusing on the evolution of poverty definitions, methodologies, and recent trends. (250 words)