At present, whether a person is below the poverty line or not is measured on the basis of daily expenditure. What are flaws in this model? Do we have any other models to handle our flawed understanding of poverty? Discuss.

Published: February 19, 2017

The Lakdawala Formula which was in place till 2011 provided that a non-poor can afford 2400 and 2100 calories worth of consumption in rural and urban areas respectively. Thus, a poor was the one who cannot meet these energy requirements. However, this model led the number of poor got double in India from 16% to 36.3%. Due to this and other reasons, the calorie based model was considered flawed. To correct the anomaly, the Suresh Tendulkar committee defined a poverty line on the basis of monthly spending on food, education, health, electricity and transport also. Thus, this model chose the “Cost of Living” to identify the poor. As per this model, a benchmark daily per capita expenditure of Rs. 27 and Rs. 33 in rural and urban areas was fixed as poverty line. This brought the number of poor from 36.3% to 22% of the people. But these figures were too much low and faced immediate backlash. Then, Rangarajan committee raised these limits to Rs. 32 and Rs. 47. With these figures, poor in India stood to be 30% of total population.
The flaw with the daily expenditure model are as follows: Firstly, the amount considered to be daily expenditure limit (Rs. 32/Rs. 47) are too much unrealistic considering the inflation and purchasing power of rupee in current times; Secondly, there is a huge difference in cost of living in India and it varies not only from state to state, but also within a state. Thus, there is no consensus among states regarding these figures; Thirdly, such model is also not free of inclusion and exclusion errors; and such errors have deep fiscal ramifications for the government. Fourthly, the pattern of consumption varies greatly in India from state to state.
Alternative model
There cannot be a single yardstick to measure poverty in entire population in India. A person who earns Rs. five thousand a month in Ranchi may not be able to afford even basic needs in Mumbai. The need is to either assign the job of identification of poor to districts (with each district free to decide its own poverty line subject to approval by state). Also there is a way that government uses the basic exemption limit (BEL) – which is the level above which an individual is able to pay tax. Using this BEL, government can divide it with the number Five- as an average number of household members in India, and thus can also fix poverty level in the country.