Poverty measurement and estimation are essential processes used to understand the extent, distribution, and nature of poverty. These measurements help governments, international organizations, and policymakers to track poverty trends, allocate resources, and design effective poverty alleviation strategies.
1. Defining Poverty
Before discussing measurement, it is important to understand the concept of poverty. Poverty is typically classified into absolute poverty and relative poverty:
- Absolute Poverty: This refers to the inability to meet basic needs such as food, clothing, and shelter. It is defined using a fixed threshold, often called the poverty line.
- Relative Poverty: This refers to an individual’s or group’s economic status compared to the wider society in which they live. It emphasizes inequality within a society rather than survival.
2. Methods of Poverty Measurement
Several methods are used to measure and estimate poverty. The most widely used methods include:
A. Poverty Line Approach
This is one of the most traditional and widely used methods for measuring poverty.
- Poverty Line: The poverty line is a threshold level of income or consumption below which an individual or household is classified as poor. It is typically set based on the cost of a minimum acceptable standard of living.
Example: In India, the Planning Commission (now replaced by NITI Aayog) used to set the poverty line based on consumption patterns derived from surveys. In 2011-12, the poverty line was set at INR 33 per day for urban areas and INR 27 per day for rural areas.
- Types of Poverty Lines:
- National Poverty Line: This is set by national governments and reflects the specific consumption patterns and cost of living in a particular country.
- International Poverty Line: Organizations like the World Bank set a global poverty line to compare poverty across countries. The World Bank’s international poverty line, as of 2022, is set at $2.15 per day (PPP), adjusted for purchasing power parity (PPP) to account for differences in price levels between countries.
B. Headcount Ratio (HCR)
- Definition: The headcount ratio is the percentage of the population that lives below the poverty line.
- Formula: HCR=Number of people below the poverty lineTotal population×100HCR = \frac{Number \ of \ people \ below \ the \ poverty \ line}{Total \ population} \times 100HCR=Total populationNumber of people below the poverty line×100
Example: If a country has a population of 100 million people and 30 million people live below the poverty line, the headcount ratio would be 30100×100=30%\frac{30}{100} \times 100 = 30\%10030×100=30%.
- Limitations: The HCR only tells us the proportion of people below the poverty line but does not measure the depth of poverty or how far individuals fall below the poverty line.
C. Poverty Gap Index
- Definition: The poverty gap index measures the intensity or depth of poverty by looking at the average distance below the poverty line as a proportion of the poverty line. It indicates how much income would be needed to bring the poor up to the poverty line.
- Formula: The poverty gap for an individual is the difference between their income and the poverty line, divided by the poverty line. The index is the average poverty gap across the entire population.
Example: If the poverty line is $2 per day, and a person earns $1.50 per day, their poverty gap is $0.50. If multiple individuals fall below the poverty line, their poverty gaps are aggregated and averaged to measure the overall depth of poverty.
- Use: The poverty gap index helps policymakers understand the severity of poverty, beyond just the number of people living in poverty.
D. Multidimensional Poverty Index (MPI)
- Definition: Poverty is multidimensional and cannot be fully captured by income alone. The Multidimensional Poverty Index (MPI) considers multiple deprivations that poor people face, including education, health, and living standards.
- Dimensions and Indicators:
- Education: Years of schooling, school attendance
- Health: Child mortality, nutrition
- Living Standards: Access to electricity, clean water, sanitation, cooking fuel, and housing.
Example: A person might be non-poor by income standards but might suffer from poor health and lack access to education and clean water. The MPI captures this multidimensional aspect by assessing deprivations in several indicators and aggregating them into a composite poverty index.
- Methodology: The MPI assigns a weight to each indicator. A person is considered multidimensionally poor if their combined deprivations exceed a certain threshold.
- Advantages: MPI provides a broader understanding of poverty by considering multiple dimensions of well-being, rather than just income.
E. Human Development Index (HDI) and Related Indices
- HDI: While the HDI is not a poverty measure per se, it is closely related. It combines three indicators – life expectancy, education, and per capita income – to rank countries on human development.
- Inequality-Adjusted HDI (IHDI): This adjusts the HDI for inequality within a country. The higher the inequality, the lower the IHDI compared to the HDI, providing a measure of income inequality alongside development.
F. Sen’s Poverty Index
- Definition: Proposed by Nobel Laureate Amartya Sen, this measure takes into account not only the proportion of people in poverty (headcount) but also the depth of poverty (poverty gap) and inequality among the poor.
- Components: The index is a weighted average of the poverty gap and the headcount ratio. It provides a more nuanced understanding of poverty than the headcount ratio alone.
Example: Sen’s Index would be useful in a situation where a small proportion of the population is extremely poor, and the inequality within that group of poor people is also significant.
3. Challenges in Measuring Poverty
A. Data Availability and Quality
- Survey-Based Data: Poverty measurement often relies on household surveys, which can be subject to inaccuracies, such as underreporting of income or exclusion of informal sector workers.
- Frequency of Data Collection: In some countries, poverty data may be collected infrequently, which makes it difficult to monitor short-term trends and shocks.
B. Regional Variations
- Urban vs. Rural Poverty: The cost of living, consumption patterns, and income sources can vary significantly between urban and rural areas. Separate poverty lines are often required to reflect these differences.
- Regional Disparities: In large and diverse countries like India, regional disparities in poverty levels are significant. For example, states like Kerala and Tamil Nadu have lower poverty rates compared to states like Bihar and Jharkhand.
C. Social Factors
- Caste, Gender, and Religion: In countries like India, caste, gender, and religion play significant roles in poverty dynamics. Women, minorities, and marginalized castes often experience higher levels of poverty and deprivation than the general population.
4. Example of Poverty Measurement in India
India has used various methods to estimate poverty, with the most notable being the Tendulkar Committee Report (2009):
- Tendulkar Committee: This committee set the poverty line based on consumption expenditure and focused on the cost of living in both urban and rural areas. It defined the poverty line as the expenditure required for basic needs like food, education, and healthcare.
Example: According to the Tendulkar Committee, the poverty line in 2011-12 was INR 33 per day in urban areas and INR 27 per day in rural areas. Based on this, about 21.9% of India’s population was considered poor.
- Current Estimation (World Bank): As of 2022, approximately 10% of India’s population was estimated to live below the international poverty line of $2.15 per day (PPP).
Conclusion
Poverty measurement is crucial for designing effective policies and programs to reduce poverty. While traditional methods like the poverty line and headcount ratio provide useful information, multidimensional approaches like the MPI offer a more comprehensive view of poverty. Policymakers need to consider the limitations of each method and choose the one that best captures the nuances of poverty in their specific contexts.
