POVERTY: CONCEPT AND MEASUREMENT

DHEERAJ S. KADAMASSTT. PROFESSOR,

DEPT. OF ECONOMICS,R T M NAGPUR UNIVERSITY

Concept of Poverty The term Poverty is articulate in a two way: Absolute Poverty Relative Poverty

Absolute poverty refers the deprivation of basic human needs which commonly include food, clothing, shelter, water, sanitation, health care and education.Relative poverty is defined contextually as economic inequality in location or society in which people live.

poverty line which is constructed for measuring the absolute poverty, will be uniform for different countries, different cultures as well as different technical levels.

the World Bank defines extreme poverty as living on less than US$1.25 per day per person at purchasing power parity from 2005, it is known as an international poverty line.

According to this criteria in India 41.6% population were absolutely poor in 2004-05.

Measuring Absolute Poverty

Headcount Index Total Poverty Gap Average Poverty Gap Normalized Poverty Gap Average Income Shortfall Normalized income Shortfall The Foster- Greer- Thorbecke Measure Human Poverty Index Multidimensional poverty Index

Headcount Index of Poverty

Where H is the number of persons who are poor Or those whose incomes fall below the absolute

poverty line (Yp) and N is the total number of people in the economy

Headcount Index: H/N

Measuring the Total Poverty Gap

Total Poverty Gap“Total poverty gap measures the total amount of income necessary to rise everyone who is below the

poverty line up to that line”

-Where Yp is the absolute poverty line; and- Yi the income of the ith poor person

Average Poverty Gap

Where TPG is total poverty gap N is the total number of people in the economy APG shows the per capita poverty gap

APG = TPG/N

Normalized Poverty gap When APG is divided by poverty line (Yp) then we

got the value of NPG

Where Yp is poverty line. this measure lies between 0 and 1 and so can be

useful when we want a unitless measure of the gap for easier comparisons.

NPG = APG/Yp

Average Income Shortfall

AIS tells the average amount by which the income of a poor person falls below the poverty line.

AIS = TPG/H

Normalized Income Shortfalls

NIS = AIS/ Yp

• AIS divided by the poverty line to yield a fractional measure, the normalized income shortfall.

• this measure also lies between 0 and 1 and so can be useful for easier comparisons.

Poverty Gap Index

Formal Definition:The poverty gap index (PGI) is defined as the ratio of

the Poverty Gap (PG) to the poverty line. It is the poverty gap expressed as a percentage of the line.

Foster-Greer-Thorbecke measure

where Yi is the income of the ith poor person, Yp is the poverty line, and N is the population. Depending on the value of α, the Pα index takes on different

forms. If α = 2, the impact on measured poverty of a gain in income

by a poor person increases in proportion to the distance of the person from the poverty line.

Pn

Y Y

Y

p ii

H

p

1 1( )

the most desirable measures of poverty would be sensitive to the distribution of income among the poor.

P2 = (H/N)[NIS2 + (1 - NIS)2(CVP)2]

If we use α=0, we have the headcount indexIf we use α =1, we have the poverty gap indexIf we use α =2, we have the squared poverty gap index.

If α = 2, the resulting measure, P2, can be rewritten as

Human Poverty IndexThis measure is introduced by UNDP in its 1997 Human Development Report with deferent perspective of Human Poverty rather than Income poverty.

HPI is measured in terms of three key deprivations of -i) Life (percentage of people expected to die before age 40.)ii) Basic education (percentage of adults who are illiterate) iii)Economic provisioning (the percentage of people without access to-

a) health services,b) to safe water, andc) malnourished children under five.)

1Multidimensional Poverty Index MPI is introduced by UNDP in HDR 2010 for identify

specific individuals, households or larger groups of people as jointly deprived.

MPI is the product of the multidimensionally poverty headcount (the share of people who are multidimensionally poor) and the average number of deprivations each multidimensionally poor experiences

It has three dimensions mirroring the HDI – health, education, and living standards – which are reflected in 10 indicators

2Multidimensional Poverty Index

The maximum score is 100 percent, with each dimension equal weighted (each 33.3% max or 1/3) With respect to, (a) health (1/3)(b)education (1/3)(c) standard of living (1/3)

(a) health, two indicators— (so 1/3 is divided into 1/6+1/6) i) whether any child has died in the family (1/6) ii) whether any adult or child in the family is malnourished (1/6)(b)education also, two indicators— (again 1/3 is divided into 1/6+1/6)i) whether not even one household member has completed five years

of schooling (1/6)ii) whether any school-age child is out of school (1/6)(c) standard of living, equal weight is placed on six deprivations (each

counting one-eighteenth toward the maximum possible): i) lack of electricity, (1/18)ii) insufficiently safe drinking water, (1/18)iii) inadequate sanitation, (1/18)iv) inadequate flooring, (1/18)v) unimproved cooking fuel, (1/18)vi) lack of more than one of five assets—telephone, radio, television,

bicycle, and motorbike or similar vehicle. (1/18)

Calculation of MPIIndicator Household weight

sHousehold size 4 7 5 4Education 1/3

i)No one has completed five years of schooling 0 1 0 1 1/6ii)At least one school-age child not enrolled in school 0 1 0 0 1/6 health 1/3i) At least one member is malnourished 0 0 1 0 1/6ii) One or more child have died 1 1 0 1 1/6 living conditions 1/3i) lack of electricity 0 0 0 0 1/18Ii)No access to clean drinking water 0 1 1 1 1/18iii) No access to adequate sanitation 0 0 1 0 1/18iv)House has dirt floor 0 1 1 0 1/18V)unimproved cooking fuel (dung, firewood or charcoal) 1 1 1 1 1/18vi) Household has no car & lack of more than one of five assets— telephone, radio, television, bicycle, and motorbike or similar vehicle.

0 1 0 1 1/18

Results Deprivation score (sum of each deprivation score * its weight)

.222 .722 .389 .50

Percentage score (multiplied by 100) (C)

22.2%

72.2%

38.9%

50%

If C is 33.3% or greater, that household (and everyone in it) is multidimensionally poor.

Household with deprivation score greater than & equal to 20% but less than 33.3% are vulnerable to or at risk of becoming multidimesionlly poor.

Household with a deprivation score of 50% or higher are severely multidimesionlly poor.

MPI value is product of two measures :(H &A) Multidimensional headcount ratio H, is the proportion of the

population who are multidimentionally poor. H = q/n , H = 7+ 5+4 = 0.80

Where q is the no. of people who are multidimentionally poor & n is total pop.

The intensity of deprivation A , reflect the proportion of the weighted component indicator in which, on average people are deprived.

A= ƩƪC / q , A= (0.722*7) + (0.389*5)+(0.5*4) = 0.56 Where, C is the deprivation score MPI = H.A, MPI = 0.80 * 0.56 = 0.45

4+7+5+4

7+5+4

According to the HDR 2013 in 2005-06, 53.7 percent of India’s population (more than 62 crore ) suffered from multidimensional poverty.

Intensity of deprivation (average percentage of deprivation experienced by people in multidimensional poverty) is 52.7

MPI value is 0.283 In China only 12.5 percent.

Measuring Inequality

Size distributions (quintiles, deciles) Lorenz curves Gini coefficients and aggregate measures

of inequalityFunctional distributions

Table No.1 Typical Size Distribution of Personal Income in a Developing Country by Income Shares—Quintiles and Deciles

kuznet's Ratio =top20% income/ bottom 40%income

Figure 1 The Lorenz Curve

Figure 2 The Greater the Curvature of the Lorenz Line, the Greater the Relative Degree of Inequality

Figure 5.3 Estimating the Gini Coefficient

Figure 4 Four Possible Lorenz Curves

Figure 5.5 Functional Income Distribution in a Market Economy: An Illustration

Studies of Poverty in India ( in crore)Author Year Rural Urba

nTotal Criterion of Poverty

lineP.K.Bardhan 1960-61 13.1(38) Monthly per capita consumption

expenditure Rs 15 at1960-61 price(LPI)

1967-68 22.1(53)B.S. Minhas 1956-57 18.1(65) Rs.20 at 1960-61 prices

1963-64 22.1(57.8)

1969-70 21(50.6)

M. Ahluwalia 1956-57 18.1(54)

Rs.15 at 1960-61 prices for

1963-64 17.1(44.5)

1967-68 23.5 (56.5)

1973-74 24.1 (46)Dandekar & Rath

1960-61 13.5(40) 4.2(50) 17.7(41) Rs.15 at 1960-61 prices for rural & 22.5 for urban

1969-70 16.6(40) 4.9(50) 21.5(41)Expert group(1993) Planning comm

1973-74

1987-88

26.13(56.4)

(39.1)

6(49.2)

(40.1)

32.16(54.9)

(39.3)

Rural-Rs- 49.09 & Urban Rs - 56.96

R--115.43 & u-- 165.58

Poverty Estimates based on 61st NSS Round Year 2004-

05Reference Period

All India(%) Rural (%) Urban(%)

URP method 27.5 28.3 25.7MRP method 21.8 21.8 21.7

• Consumption data for URP uses 30- day recall period for all items of consumpion

• Consumption data for MRP uses 365-day recall period for 5 infrequently perchased non-food items namely, clothing, footwear, durable goods, education and istitutional medical expenses and 30-day recall period for remaining items.

Year Rural (%)

Urban (%)

Total (%)

Criterion of Poverty line

1973-74 56.4 49 54.91977-78 53.1 45.2 51.31983-84 45.7 40.8 44.51993-94 37.3 32.4 36 Rs 211.3 for Rural & 274.88

for urban2004-05 28.3 25.7 27.5 Rs 327.56 for Rural & 454.11

for urban

Poverty Estimates From 1973-74 to 2004-05 on the basis of expert

group method 1993

Poverty Estimates of Tendulkar Committee

(2009) Committee pointed out three criticism on existing

official poverty line- - 1973-74,s poverty line baskets is outdated. - crude price adjustment - not accounting of private expenditure on Health

& Education Committee has estimated new poverty line for

the year 2004-05 -for Rural Rs. 446.68 per capita per month -for Urban Rs. 578.80 per capita per month On this basis Poverty estimation -Year All

India Rural Urban

1993-94

45.3% 50.1% 31.8%

2004-05

37.2 % 41.8 % 25.7 %

Poverty Estimates based on 66th NSS Round Year 2009-

10 On march 19, 2012, planning commission released the

estimate of poverty for the year 2009-10 computed from the 66th round NSS (2009-10) data on household consumption survey.

The poverty line was defined as, Rs. 22.40 per capita per day in Rural aria (monthly

Rs672.80 )& Rs 28.60 per capita per day in Urban aria( monthly

Rs 859.60) On this basis the poverty estimation- Poverty Estimates based on 66th NSS Round Year

2009-10

Year All India Rural Urban2009-10 29.8% 33.8% 20.9%•Poverty Estimated by Tendulkar method in planning commission PRESS NOTE2011-12 21.9 % 25.7% 13.7%

Strategies for reducing poverty

Economic growth will lead to poverty reduction-World Bank Approach. “Trickle down Approach”

Human Development Report approach sees problems with economic growth approach. HDR argues it can be jobless, ruthless, voiceless, and rootless, & futureless or unsustainable.

Problems with Economic Growth Approach

What kind of growth? UNDP argues growth can be: “jobless” overall economy grows but does not expand employment,

“ruthless”-where the rich only benefit, leaving millions in poverty,

voiceless, no basic democratic freedoms, and

rootless “ undermine cultural identity, and

“futureless” where present generation squanders resources needed for future generation, UNDP’s Human Development Report 1996.

Poverty Alleviation Programme 1.The Integrated Rural Development Programme

(IRDP)-1978-79 2. National Rural Employment Programme (NREP) 3. Rural Landless Employment Guarantee

Programme(RLEGP)-1983 4. Jawahar Rozgar Yojana (JRY) (Merged 2 & 3) -1989 5. Traaining of Youth for Self-Employment (TRYSEM) 6. Swarnajayanti Gram Swarozgar Yojana (SGRY) 7. Sampurna Gramin Rozgar Yojana (SGRY) (Merged

4,5 & 6) -SEPT. 2001 8 Nehru Rozgar Yojana (for urban aria) 9.Swarnajayanti Shahari Swarozgar Yojana -1997-98 10. MGNREGS- 2006

Towards solution of the problem of poverty

Adopt strategy of pro-poor growth instead of emphasizing liberalization and GDP growth.

Stimulating agricultural growth. Increasing the productivity and job quality

of the unorganised sector Empowerment of the poor through

education and skill formation Empowerment of the poor through

provision of better health Providing employment through National

Rural Employment guarantee scheme

THANK YOU..