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An Estimate of Poverty Reduction between 2004-05 and 2005-06

Using sample data from the 62nd round of the National Sample Survey, this paper estimates the headcount ratio of poverty for 2005-06. This estimate, based on the methodology recommended by the 1993 Planning Commission expert group, is compared with the poverty ratio for 2004-05 as derived from the 61st round of the nss. While the two estimates are strictly speaking not comparable, the numbers show a 1.4 to 1.6 percentage point decline in the headcount ratio between the two years, as against the 0.8 percentage point trend rate of decline between 1993-94 and 2004-05.

SPECIAL ARTICLE

An Estimate of Poverty Reduction between 2004-05 and 2005-06

K L Datta

Using sample data from the 62nd round of the National Sample Survey, this paper estimates the headcount ratio of poverty for 2005-06. This estimate, based on the methodology recommended by the 1993 Planning Commission expert group, is compared with the poverty ratio for 2004-05 as derived from the 61st round of the NSS. While the two estimates are strictly speaking not comparable, the numbers show a 1.4 to

1.6 percentage point decline in the headcount ratio between the two years, as against the 0.8 percentage point trend rate of decline between 1993-94 and 2004-05.

The views expressed are those of the author and should not be attributed to the Planning Commission. In a discussion of the draft of this paper, valuable suggestions were received from Suman Berry, Surjit S Bhalla, V L Chopra, Syeda Hameed, Kirit S Parikh, B L Mungekar, Abhijit Sen and Arvind Virmani. Ratna A Jena and Tarique Ali provided statistical assistance. The author also acknowledges the comments received from an anonymous referee of this journal.

K L Datta (kl.datta@nic.in) is with the Planning Commission, New Delhi.

T
he Planning Commission uses the Expert Group1 method to estimate the incidence of poverty in the country. This method is being applied since March 1997 following the decision taken by the Planning Commission.

Under the expert group method, the incidence of poverty, measured by the percentage of people living below the poverty line (known as the poverty or headcount ratio) is worked out at the state level using state-specific poverty lines and state-specific distribution of persons obtained from the large sample survey of consumer expenditure of the National Sample Survey (NSS). The poverty ratio at the national level is derived as an average of the state-wise poverty ratios.

The expert group was specific in its statement that the basic source of information for estimating the poverty ratio should be the large sample surveys of consumption expenditure which are carried out by the National Sample Survey Organisation (NSSO) yielding state level estimates of mean per capita total consumption expenditure and the size distribution of the population around the mean. Thus, one of the consequences of the expert group method is that poverty can be estimated only once in a pproximately five years.2 As a result, the official poverty estimates are available once in five years and there are no official e stimates for other years, thus creating a void.

There are two possible approaches to fill this gap in poverty estimates. First, a mathematical model may be constructed to e stimate poverty for these years, appropriately quantifying the likely poverty reduction due to the general income growth and also due to the income generation that takes place as a result of the poverty alleviation programmes, specially designed and implemented for this purpose. However, it is a daunting, if not impossible task to model the impact of the poverty alleviation programmes on the income generation of the poor and consequently on poverty, primarily due to data constraints.3 An alternative a pproach could be to estimate poverty from the thin (or small) sample survey consumer expenditure data, which has been available from the NSSO every year since 1986-87. Researchers have widely used the thin sample survey consumer expenditure data not only to estimate poverty but also in exploring other aspects of the levels of living.4

The latest officially released poverty estimate by the Planning Commission relates to the year 2004-05. This is based on the large sample survey consumer expenditure data of the 61st round of the NSS. After 2004-05, the NSSO has released the consumer expenditure data collected in its 62nd round, which relates to the year 2005-06. The time frame of the survey of 61st and 62nd

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rounds is the same, viz, the agricultural year (July to June). But poverty estimates are made from the national level poverty line the consumer expenditure data of the 62nd round belongs to the and national level consumption distribution. thin sample survey of the NSS while that of the 61st round is from the large sample survey. Poverty Line: The poverty line used in the expert group method

Nevertheless, there is a need to assess whether the high has a legacy. It follows from the task force5 constituted by the growth witnessed in the recent past has led to commensurate Planning Commission which submitted its report in 1979. The r eduction in poverty or not. Keep-task force quantified the poverty

ing this in mind, an attempt is made here to estimate poverty for the Table 1.1: Specially Constructed Consumer Price Index for Agricultural Labourers: 2004-05 (1986-87 = 100) States Food Fuel and Clothing, Miscellaneous Average line at the national level, separately in rural and urban areas.6 The
year 2005-06 using the thin sample data of the 62nd round of consumer expenditure of the NSS in a manner that would render this estimate 1 Andhra Pradesh 2 Assam 3 Bihar 361.75 331.83 311.17 Light 340.58 396.08 356.42 Bedding, Footwear 364.67 422.00 380.33 332.08 338.67 365.33 (Weighted) 357.93 339.74 321.32 expert group adopted these poverty lines, which were expressed as monthly per capita consumption expenditure of Rs 49.09 in the
comparable to the poverty estimate of 2004-05 d erived from the large 45 Gujarat Haryana 353.75 367.25 264.08 390.42 335.33 344.58 373.33 316.67 349.28 363.35 r ural areas and Rs 56.64 in the u rban areas, both at 1973-74 prices
sample survey consumer expendi 6 Himachal Pradesh 327.92 227.33 323.58 379.50 326.13 and anchored in per capita daily
ture of the NSS 61st round by the 7 Jammu and Kashmir 353.42 245.75 375.00 385.83 350.47 calorie intake of 2,400 kcal in the
expert group method so that an 8 Karnataka 337.92 336.92 346.75 331.42 337.61 rural areas and 2,100 kcal in the
idea about the change in poverty 9 Kerala 344.17 347.67 353.83 356.00 345.79 u rban areas. The expert group dis
between 2004-05 and 2005-06 can 10 Madhya Pradesh 326.33 341.00 346.92 316.67 327.15 aggregated these national level
be formed. It must be kept in mind 11 Maharashtra 357.25 323.00 320.17 344.75 352.66 poverty lines into state-specific
that while the procedure is similar, it is not identical since both the 12 Orissa 13 Punjab 301.17 362.83 371.42 381.50 416.75 314.42 377.50 327.00 316.54 359.01 p overty lines.
data set and m ethodology are dif 14 Rajasthan 15 Tamil Nadu 341.50 324.75 367.75 361.17 366.33 354.50 326.08 430.67 342.67 337.47 State-Specific Rural Poverty
ferent. Therefore the two poverty 16 Uttar Pradesh 338.83 327.92 367.00 347.50 339.98 Lines: Under the expert group
estimates are strictly speaking not 17 West Bengal 310.08 381.75 450.58 427.50 330.11 method, the national rural poverty
fully comparable. The methodo- All India 334.67 345.00 360.92 356.58 338.22 line (Rs 49.09 per capita per month
logy is first d iscussed and the esti- Weights 0.8128 0.0615 0.0372 0.0885 in 1973-74) is disaggregated into

Table 1.2: Specially Constructed Consumer Price Index for Agricultural Labourers: 2005-06 (1986-87 = 100)

mates are then presented.

The Expert Group Method

In order to make the poverty estimates of 2004-05 (estimated from the NSS 61st round consumer expenditure data by the Planning Commission) and 2005-06 (from the NSS 62nd round thin sample s urvey consumer expenditure data) comparable, the method applied and the data used in the two years

The price indices for food, fuel and light, clothing, bedding and footwear and miscellaneous are simple average of the monthly CPIAL (July 2004 to June 2005). These four price indices are averaged using their weights in the national rural consumption basket of 1973-74 (NSS 28th round). The weighted average given in the last column is the specially constructed CPIAL for 2004-05.

States Food Fuel and Clothing, Miscellaneous Average
Light Bedding, (Weighted)
Footwear
1 Andhra Pradesh 375.58 365.42 366.33 347.08 372.09
2 Assam 343.00 408.67 458.50 377.83 354.42
3 Bihar 337.58 371.25 395.25 375.50 345.15
4 Gujarat 377.00 275.25 336.58 390.08 370.40
5 Haryana 388.08 400.67 354.67 325.92 382.11

state-specific poverty lines using state-specific price indices (of 197374) and interstate price differentials. The state-specific price indices (in 1973-74) are worked out by averaging the state-specific food and non-food price indices of the Consumer Price Index of Agricultural Labourers (CPIAL), using their respective weights in the consumption basket of the poor at the national level.7 The interstate price

have to be comparable. There are 6 Himachal Pradesh 347.42 228.00 326.58 411.67 344.99 differential is worked out from
two basic differences between the 7 Jammu and Kashmir 364.83 249.75 375.33 414.25 362.52 Fisher’s Index, which computes
method applied here to estimate 8 Karnataka 333.42 333.75 350.08 362.83 336.66 the cost of a fixed consumption
poverty in 2005-06 and the method 9 Kerala 346.75 348.50 360.08 375.67 349.91 basket for the states, from the
employed by the Planning Commis 10 Madhya Pradesh 351.75 339.83 355.42 343.25 350.40 quantity and value of consump
sion in 2004-05. First, the poverty estimate in 2004-05 by the Commission is based on large sample survey data while thin sample sur 11 Maharashtra 12 Orissa 13 Punjab 14 Rajasthan 15 Tamil Nadu 371.92 316.42 394.00 377.25 326.75 351.33 393.00 395.17 390.33 381.92 330.50 433.42 332.75 380.58 359.67 379.17 379.42 344.42 358.67 451.50 369.75 331.06 387.41 376.53 342.41 tion of each item.8 These state-specific rural poverty lines in 1973-74 are updated for use in later years by state- specific price
vey consumer expenditure data has 16 Uttar Pradesh 375.08 317.00 366.33 378.92 371.52 indices, which are constructed as the
been used to estimate poverty in 17 West Bengal 317.58 390.92 470.83 449.42 339.46 weighted average of (a) food, (b) fuel
2005-06. Second, the national level All India 351.08 356.83 369.00 378.42 354.52 and light, (c) clothing, bedding and
poverty estimated by the Planning Weights 0.8128 0.0615 0.0372 0.0885 footwear, and (d) miscellaneous, of
Commission in 2004-05 is an aver- The price indices for food, fuel and light, clothing, bedding and footwear and miscellaneous are simple average of monthly CPIAL (July 2005 to June 2006). These the CPIAL, averaged by their respec
age of the state-wise poverty ratios, while in 2005-06 the national level four price indices are averaged using their weights in the national rural consumption basket of 1973-74 (NSS 28th round). The weighted average given in the last column is the specially constructed CPIAL for 2005-06. tive weights in the consumption b asket of the poor in 1973-74 at the
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n ational level.9 The expert group termed these state-specific price in of persons obtained from the NSS data on consumer expenditure.
dices as specially c onstructed CPIAL. The aggregate poverty ratio of the state is worked out by combining
the rural and urban poverty ratios. The poverty ratio at the national
State-Specific Urban Poverty Lines: This was done as above for the level is worked out as an average of the state-wise p overty ratios.
rural lines, except that the urban state-specific price indices are con- Regional price data, essential to estimate the state-specific
structed from the Consumer Price Index of Industrial Workers (CPIIW) poverty lines are available for only the major states. This restricted
and the interstate price differential is captured through Fisher’s the computation of the poverty line and, in consequence, the
Table 2.1: Specially Constructed Consumer Price Index for Industrial Workers: 2004-05 (1982 = 100) p overty ratio to these states despite the fact that the NSS data on distribution of persons were available for all the major states and
State Food Fuel and Housing Clothing, Miscellaneous Average UTs. The poverty lines could be estimated in rural and urban areas
Lifght Bedding, (weighted) Foodwear of 18 states. These are: Andhra Pradesh, Assam, Bihar, Gujarat,
1 Andhra Pradesh 512.82 567.95 591.92 322.82 522.67 514.39 Haryana, Himachal Pradesh, Jammu and Kashmir, Karnataka,
2 Assam 461.47 343.65 285.79 441.92 537.22 458.64 Kerala, Madhya Pradesh, Maharashtra, Orissa, Punjab, Rajasthan,
3 Bihar 431.17 777.50 877.50 355.00 545.50 478.66 Tamil Nadu, Uttar Pradesh, West Bengal and Delhi.14 The poverty
4 Chhattisgarh 439.50 616.67 656.50 314.50 461.50 456.20 ratios in the remaining states/UTs were equated with one of the
5 Delhi 566.50 550.08 944.50 396.08 729.58 591.71 6 Gujarat 512.01 592.24 464.51 318.57 525.86 512.51 7 Haryana 469.43 641.83 763.26 412.79 543.13 496.57 8 Jammu and Kashmir 613.42 665.83 588.00 414.25 667.75 617.81 18 states for which it could be computed. This equation, based on the criteria of physical contiguity of areas and similarity of e conomic profile resulted in the following: (a) the poverty ratio
9 Jharkhand 430.38 646.29 581.67 369.67 473.98 452.73 of Assam is adopted for the remaining six north-eastern states,
10 Karnataka 531.32 678.01 560.28 316.32 515.84 533.68 namely, Arunachal Pradesh, Meghalaya, Mizoram, Manipur,
11 Kerala 555.66 509.69 436.10 322.29 595.06 548.12 N agaland and Tripura and also for Sikkim; (b) the poverty ratio
12 Madhya Pradesh 488.21 582.35 773.86 351.98 483.09 497.15 of Tamil Nadu is used for Pondicherry and Andaman and Nicobar
13 Maharashtra 563.80 775.25 1004.09 362.93 564.29 583.40 14 Orissa 448.80 534.27 637.63 340.86 450.01 456.37 15 Punjab 467.24 614.27 585.39 331.92 440.42 472.65 16 Rajasthan 500.48 548.78 549.97 393.83 509.76 503.15 Islands; (c) the poverty ratio of Kerala is used for Lakshadweep; (d) the poverty ratio of Goa is used for Daman and Diu; and (e) urban poverty ratio of Punjab is used for both rural and urban
17 Tamil Nadu 514.59 591.64 639.93 311.48 562.69 523.50 areas of Chandigarh.
18 Uttar Pradesh 492.68 554.38 813.56 341.34 484.26 499.46
19 West Bengal 477.46 439.07 442.70 415.82 523.57 478.37 Table 2.2: Specially Constructed Consumer Price Index for
All India 508.25 610.50 682.00 348.08 529.83 517.77 Industrial Workers: 2005-06 (1982 = 100)
Weight 0.7463 0.0671 0.0252 0.0286 0.1328 State Food Fuel and Housing Clothing, Miscellaneous Average Light Bedding, (weighted)
The price indices for food, fuel and light, housing, clothing, bedding and footwear and Footwear
miscellaneous are simple average of monthly CPIIW (July 2004 to June 2005). These five price
indices are averaged using their weights in the national urban consumption basket of 1973-74 1 Andhra Pradesh 539.47 564.30 594.80 429.20 549.11 540.66
(NSS 28th round). The weighted average given in the last column is the specially constructed CPIIW for 2004-05. 2 Assam 473.45 424.50 372.80 449.30 537.90 475.49
I ndex.10 The CPIIW, which are available for different urban centres within a state/union territories (UT) are mapped into the state/UT 3 Bihar 492.28 712.80 763.30 417.50 536.68 517.67 4 Chhattisgarh 485.32 557.20 614.70 373.80 495.98 491.63 5 Delhi 610.25 725.70 859.20 510.10 726.03 636.78
level.11 The state-specific CPIIWs are worked out by averaging the 6 Gujarat 530.48 525.50 509.50 416.90 549.91 528.95
C PIIW of (a) food, (b) fuel and light, (c) housing, (d) clothing, bedding 7 Haryana 522.29 583.40 681.50 462.00 570.22 535.05
and footwear, and (e) miscellaneous with their respective weights in 8 Jammu and Kashmir 642.11 684.90 604.10 525.10 692.96 647.43
the consumption basket of the poor at national level in 1973-74.12 The 9 Jharkhand 465.66 650.80 572.20 403.70 494.27 482.80
state-specific price indices for later years are constructed in a similar 10 Karnataka 550.79 671.00 564.50 404.40 572.68 557.92
way as in the rural areas, and using them, the state-specific poverty 11 Kerala 568.57 519.00 513.10 364.90 617.84 564.56
lines of 1973-74 are updated. The expert group termed these state 12 Madhya Pradesh 531.89 615.00 699.70 415.40 522.23 537.08
specific price indices as specially constructed CPIIW.13 13 Maharashtra 594.90 596.50 839.10 478.00 609.54 599.76 14 Orissa 482.98 562.50 550.80 381.80 468.49 485.20
National Poverty Line: The expert group estimated state-specific poverty lines, but not specifically the national level poverty lines. 15 Punjab 504.08 544.20 604.00 420.90 488.11 504.79 16 Rajasthan 536.57 525.20 593.00 457.40 534.89 534.74 17 Tamil Nadu 529.50 561.40 611.90 414.80 578.91 537.00
The national poverty lines under the expert group method are 18 Uttar Pradesh 538.54 568.20 809.00 407.20 506.90 539.39
worked out as an interpolated value from the national level con 19 West Bengal 497.85 488.70 481.40 468.60 526.82 499.83
sumption distribution obtained from the NSS consumer expendi- All India 540.40 582.23 642.85 436.89 558.27 545.20
ture data and the national level poverty ratio. The national level Weight 0.7463 0.0671 0.0252 0.0286 0.1328
poverty ratio is estimated as an average of state-wise poverty r atios. Hence, the estimate of the national level poverty line in (1) The price indices for food, fuel and light, housing, clothing, bedding and footwear and miscellaneous are simple average of monthly CPIIW (July 2005 to June 2006). These five price indices are averaged using their weights in the national urban consumption basket of 1973-74
the expert group method is implicit. (NSS 28th round). The weighted average given in the last column is the specially constructed CPIIW in 2005-06.
(2) From January 2006, the Labour Bureau has been publishing the commodity and centre
Poverty Ratio: The state-specific poverty ratios are worked out from state-specific poverty lines and state-specific class distribution specific CPIIW with 2001 base. The Labour Bureau has not yet published the conversion factor from the current (2001) to the old (1982) series for all these five items and for all the centres. This may result in some of the price indices for 2005-06 tentative.
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Besides, in Goa and Dadra and Nagar Haveli, the poverty ratio is estimated from the NSS expenditure distribution of the state in conjunction with the poverty line of Maharashtra, which is a neighbouring state.

Poverty Estimates in 2005-06

The five-year periodicity of the official poverty estimates as mentioned earlier stems from two interrelated factors, namely,

(a) the decision of the expert group to rely on the large sample

survey data on consumer expenditure of the NSSO to estimate state-wise poverty ratios

and (b) to derive the

2005-06 (Rs per capita per month)

State 2004-05 2005-06 n ational poverty ratio from

Table 3.1: Rural Poverty Line in 2004-05 and

1 Andhra Pradesh 292.95 304.54 state-wise poverty ratios.
2 Assam 387.64 404.39 These two are interrelated
3 Bihar 354.36 380.64 because, according to the
4 Gujarat 353.93 375.33 expert group method,
5 Haryana 414.76 436.17 state-wise p overty ratios
6 Himachal Pradesh 394.28 417.08 can be estimated only from
7 Jammu and Kashmir 391.26 404.71 the large sample survey
8 Karnataka 9 Kerala 10 Madhya Pradesh 11 Maharashtra 324.17 430.12 327.78 362.25 323.26 435.24 351.07 379.80 data on consumer expenditure, which is available in its quinquennial rounds,
12 Orissa 325.79 340.73 and that national poverty
13 Punjab 14 Rajasthan 410.38 374.57 442.84 411.58 ratio derived from statewise poverty ratios.
15 Tamil Nadu 351.86 357.01 The expert group made
16 Uttar Pradesh 365.84 399.78 these recommendations in
17 West Bengal 382.82 393.66 1993. Since then the cover-
All India 356.30 373.47 age and content of the thin

(1) The poverty lines of 2004-05 are estimated by

sample data has undergone

the Planning Commission using the expert group method. The poverty lines of 2005-06 have been noteworthy changes. The worked out by updating the poverty lines of

size of the thin samples

2004-05 by price inflation during the period measured by the specially constructed CPIAL in has i ncreased from about 2004-05 and 2005-06 given in Table 1.1 and

Table 1.2 respectively. 20,000 households in the

(2) The Planning Commission computed the

early 1990s to 40,000 at

poverty lines for Jharkhand, Chhattisgarh and Uttaranchal in 1999-2000 from the NSS region-wise present as against the samconsumption. Since the CPIAL for Jharkhand,

ple size of 120-1,25,000 in

Chhattisgarh and Uttaranchal were not available, the poverty lines of 1999-2000 were updated to the large sample survey. 2004-05 using the CPIAL of the present-day Bihar, Madhya Pradesh and Uttar Pradesh respectively. In The time frame of most of view of the perceived notion that the price

the thin s ample surveys is

behaviour in the carved out portion of the state is different from the original, such a method of uniform, viz, one year and updation was not resorted to estimate the poverty

coincides with that of the

line in 2005-06.

large sample survey, which is the agricultural year (July to June). The basic information collected in the thin sample surveys are similar to the large sample survey but with a reduced volume. In the first report on thin sample survey (NSS 42nd round) the NSSO published the r esults for 13 states and one UT. In the subsequent surveys the results for larger number of states have been made available. In the latest thin sample survey, which relates to the year 2005-06 (NSS 62nd round), the results for 23 states and also for the group of north-eastern states and group of UTs have been published.

The large sample survey in 2004-05 (NSS 61st round) covered 1,25,000 households, with 64 per cent of the sample households in the rural areas and 36 per cent in the urban areas. The thin sample survey in 2005-06 (NSS 62nd round) covered 40,000 households, with 48 per cent of the sample households in the r ural areas and 52 per cent in the urban areas.15

The NSS thin sample consumer expenditure data have often been used to estimate the poverty ratio. In most of these cases, the poverty ratios have been worked out at the national level, separately in rural and urban areas, using the national level p overty line, which have been obtained by updating the Planning Commission estimated rural and urban poverty lines of the year 1973-74. The poverty lines have also been obtained by updating (in some cases backdating) the national level poverty line derived by the commission for later years using the expert group method. The updating has generally been done by area-specific price indices, which are the CPIAL in the rural areas and the CPIIW in the urban areas. A similar effort is made here to estimate the poverty ratio in 2005-06 by utilising the thin sample consumer expenditure of the NSS (62nd round) by establishing comparability with the expert group method.

Estimating the Poverty Lines in 2005-06

The state-specific p overty lines in 2005-06 are derived by u pdating the state-specific poverty lines of 2004-05 estimated by the Planning Commission using the expert group method, for the price inflation during the period. The price inflation during the period is computed following the expert group method, which is employed by the Planning Commission for updating the poverty lines.

The price inflation between 2004-05 and 2005-06 is calculated from a specially constructed price index worked out from the commodity-specific price index of CPIAL in the rural areas and CPIIW in the urban areas. In the rural areas, the state-wise annual average CPIAL for (a) food,

(b) fuel and light, (c) cloth-and 2005-06 (Rs per capita per month)

Table 3.2: Urban Poverty Line in 2004-05

ing, bedding and footwear, State 2004-05 2005-06
and (d) miscellaneous 1 Andhra Pradesh 542.89 570.61
items are estimated from 2 Assam 378.84 392.76
the month-wise price indices of each of them. The 34 Bihar Chhattisgarh 435.00 560.00 470.45 603.49
CPIAL of these four commodity groups are calcu 567 Delhi Gujarat Haryana 612.91 541.16 504.49 659.59 558.52 543.58
lated for 2004-05, using 8 Jammu and Kashmir 553.77 580.32
the monthly indices of July 9 Jharkhand 451.24 481.21
2004 to June 2005. Simi 10 Karnataka 599.66 626.90
larly, the CPIAL of these 11 Kerala 559.39 576.17
four commodity groups 12 Madhya Pradesh 570.15 615.94
are calculated for 2005-06 13 Maharashtra 665.90 684.58
using the monthly indices 14 Orissa 528.49 561.88
of July 2005 to June 2006. For each of these two 15 Punjab 16 Rajasthan 466.16 559.63 497.86 594.77
years, a specially con 17 Tamil Nadu 18 Uttar Pradesh 547.42 483.26 561.53 521.90
structed CPIAL is generated 19 West Bengal 449.32 469.48
for each state by averaging All India 538.60 567.12

the state-specific price The poverty lines of 2004-05 are estimated by the Planning Commission using the expert group i ndices of these four method. The poverty lines of 2005-06 have been worked out by updating the poverty lines of

c ommodity groups using

2004-05 by price inflation during the period their respective weights in measured by the specially constructed CPIIW in 2004-05 and 2005-06 given in Tables 2.1 and 2.2 the national consumption respectively.

november 22, 2008

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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

2004-05 and the price updated poverty Table 4.1: Rural Poverty Ratio: 2004-05 and 2005-06 data on consumer expenditure using

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.

State Poverty Ratio (%) Sample Households
2004-05 2005-06 2004-05 2005-06
1 Andhra Pradesh 7.5 7.0 5,555 1,500
2 Assam 17.0 15.4 3,350 952
3 Bihar 32.9 34.1 4,354 1,211
4 Chhattisgarh 31.2 - 1,997 276
5 Gujarat 13.9 12.1 2,320 632
6 Haryana 9.2 20.0 1,680 448
7 Himachal Pradesh 7.2 5.4 2,143 544

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

expert group method. 11 Kerala 9.6 8.6 3,300 1,024 rural poverty ratio in Chhattishgarh,
The national poverty line in 2005-06 12 Madhya Pradesh 29.8 29.7 3,838 860 Jharkhand and Uttarkhand could not be
is computed in a manner which is not 13 Maharashtra 22.2 12.6 5,014 935 computed for 2005-06 due to non
identical to the expert group method, 14 Orissa 39.8 38.2 3,836 916 availability of poverty lines for these states.
but is close to it. In the expert group 15 Punjab 5.9 7.4 2,433 543 The poverty lines for these three states
16 Rajasthan 14.3 15.1 3,541 945
method, the national poverty line (in 17 Tamil Nadu 16.9 14.7 4,159 1,211 could not be computed due to non
2004-05, separately in rural and urban 18 Uttar Pradesh 25.3 27.8 7,868 1,524 availability of CPIAL. Also, the sample size
areas) is worked out from the national 19 Uttaranchal 31.7 - 1,465 228 in Chhattisgarh and Uttarakhand is e xtre
level consumption distribution and the 20 West Bengal 24.2 22.6 4,988 1,340 mely low in the r ural areas.16 The state
national level poverty ratio, whereas 21 North-eastern states 17.0 11.6 - 1,644 specific poverty r atios in the urban areas in
the national poverty line in 2005-06 22 Group of UTs - 9.0 - 284 2004-05 and 2005-06 are given in Table 4.2

All-India 21.8 20.4 79,298 18,992

specific p overty lines in 2005-06 to the

10 Karnataka 12.0 13.7 2,880 780

given in Table 4.1. It may be noted that the

(separately in rural and urban areas) is computed here by updating the national poverty line of 2004-05 estimated by the Planning Commission using the e xpert group method. The updation is carried out by the price inflation implicit in the specially constructed price indices and to that extent the comparability is rooted in the expert group method.

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

  • (1) The poverty ratios of 2004-05 are estimated by the Planning Commission from large sample survey consumer expenditure data of the NSS 61st round applying the expert group method and those of 2005-06 are estimated from thin sample survey consumer expenditure data of NSS 62nd round.
  • (2) The poverty ratio for north-eastern states in 2004-05 is based on the expert group method. Under this method, the poverty ratio of Assam, estimated from the consumption distribution and poverty line of Assam, is equated with the poverty ratio of other north-eastern states and Sikkim. The poverty ratio of north-eastern states in 2005-06 is estimated from the aggregate consumption distribution of Arunachal Pradesh, Meghalaya, Mizoram, Manipur, Nagaland, Tripura and Sikkim, and the poverty line of Assam.
  • (3) Under the expert group method, poverty ratios in the UTs are not separately estimated and are equated with the poverty ratio of the neighbouring states, for which it could be estimated. This equation, based on the criteria of physical contiguity of areas and similarity of economic profile resulted in the use of the poverty ratio of Tamil Nadu for Pondicherry and Andaman and Nicobar Islands, the poverty ratio of Kerala for Lakshadweep, the poverty ratio of Goa for Daman and Diu and the urban poverty ratio of Punjab for both rural and urban areas of Chandigarh. The poverty ratio of Dadra and Nagar Haveli is estimated from its expenditure distribution and the poverty line of Maharashtra. For this reason, the poverty ratio for the UTs is not given in 2004-05. The poverty ratio for the UTs in 2005-06 is estimated from the aggregate consumption distribution of Andaman and Nicobar Islands, Chandigarh, Dadra and Nagar Haveli, Daman and Diu, Lakshadweep and Pondicherry, and the national poverty line.
  • Economic & Political Weekly

    EPW
    november 22, 2008

    (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.

    Table 4.2: Urban Poverty Ratio: 2004-05 and 2005-06

    State Poverty Ratio (%) Sample Households 2004-05 2005-06 2004-05 2005-06

    1 Andhra Pradesh 20.7 19.9 2,876 1,182

    2 Assam 2.4 2.4 900 440

    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.

    Of course, it needs to be pointed out 6 Gujarat 10.1 11.6 1,955 1,020 The level of poverty ratio as per the

    once again that while the methodology 7 Haryana 11.3 16.3 1,040 384 MRP-based poverty line is greater than

    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
    8 Jammu and Kashmir 8.5 4.2 884 711
    9 Jharkhand 16.3 16.7 1,040 575
    10 Karnataka 27.2 25.2 2,227 813
    11 Kerala 16.4 13.5 1,950 633
    12 Madhya Pradesh 39.3 33.6 2,075 1,176
    13 Maharashtra 29.0 24.9 4,993 2,236
    14 Orissa 40.3 35.0 1,187 592
    15 Punjab 3.8 3.4 1,855 860
    16 Rajasthan 28.1 23.5 1,630 1,133
    17 Tamil Nadu 18.8 15.1 4,137 1,471
    18 Uttar Pradesh 26.3 29.2 3,345 2,297
    19 West Bengal 11.2 12.9 2889 1,403

    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.

    It may be recalled that the base year 20 North-eastern states 2.4 1.0 -1,304 Conclusions

    poverty line (estimated by the task force 21 Group of UTs -18.3 -319 This paper has sought to estimate the All India 21.7 20.7 45,346 20,444

    as per capita consumption expenditure poverty ratio in 2005-06 based on NSSO

    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 5.1: Percentage and Number of Poor

    Year Poverty Ratio (%) Number of Poor (million)
    Rural Urban Total Rural Urban Total
    1 2004-05 21.8 21.7 21.8 170.3 68.2 238.5
    2 2005-06 20.4 20.7 20.4 161.3 66.5 227.8
    3 Decline in poverty ratio (% point) 1.4 1.0 1.4 - - -
    4 Rate of decline in poverty ratio (%) 6.4 4.6 6.4 - - -
    5 Decline in number of poor (million) - - - 9.0 1.7 10.7
  • (1) The poverty estimates of 2004-05 are based on the large sample survey and of 2005-06 are based on the thin sample survey of consumer expenditure of the NSS.
  • (2) The consumption distribution for both the year is derived from MRP consumption.
  • (3) The poverty lines in 2004-05 are as estimated by the Planning Commission using the expert group method. The poverty lines in 2005-06 are obtained by updating the 2004-05 poverty lines for price inflation computed from the specially constructed CPIAL in the rural areas and CPIIW in the urban areas, following the expert group method.
  • Table 5.2: Poverty Line and Poverty Ratio based on MRP Consumption Distribution

    Poverty Line (Rs) Poverty Ratio (%)

    Rural Urban Rural Urban Total

    1 2004-05 384.8 579.0 28.3 25.7 27.5
    2 2005-06 403.3 609.7 26.5 24.5 25.9
    3 Decline (percentage point) - - 1.8 1.2 1.6
    4 Rate of decline (%) - - 6.4 4.7 5.8
  • (1) The poverty lines in 2004-05 are implicit and worked out from the poverty ratio estimated by the Planning Commission based on URP consumption distribution and the class distribution of persons obtained from the MRP consumption distribution of the year.
  • (2) The poverty lines in 2005-06 are obtained by updating the 2004-05 poverty lines using the specially constructed CPIAL in the rural areas and CPIIW in the urban areas following the expert group method.
  • (3) The poverty ratios in both the years are derived from the MRP consumption distribution.
  • november 22, 2008

    SPECIAL ARTICLE

    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

    1 Expert Group on “Estimation of Proportion and

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

    Number of Poor” constituted under the chairman

    and assumed these indices of 1963-64 as valid for

    ship of D T Lakdawala, in 1993. See Planning

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

    Commission (1993). References

    arya (1974).

    2 The large sample surveys have been conducted by

    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

    Unbound Back Volumes of Economic and Political Weekly from 1976 to 2007 are available. Write to: Circulation Department,

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    320, 321, A to Z Industrial Estate Ganpatrao Kadam Marg, Lower Parel, Mumbai 400 013. Circulation@epw.in

    Economic & Political Weekly

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