Poverty Estimates and MPI

A recent report by NITI Aayog on multidimensional poverty shows that the percentage of the poor has gone down from 25% in 2015-16 to 15% in 2019-21 and around 135 million people were lifted out of poverty during this period. The Global MPI report (2023) of the UNDP also shows that the incidence of the multidimensional poverty index declined from 27.5% in 2015-16 to 16.2% in 2019-21. In this context let us analyse the need for MPI. 

Poverty: Poverty is a social condition that is characterised by the lack of resources necessary to meet a certain minimum level of living standards. 

Types of Poverty:

• Absolute poverty: It refers to the inability of a person or a household to provide even the basic necessities of life, such as food, clothing and shelter. It is also known as “subsistence poverty”.
• Relative Poverty: It is the condition in which people lack the minimum amount of income needed to maintain the average standard of living in the society in which they live. Relative poverty is measured in terms of judgements by members of a particular society of what is considered as a reasonable and acceptable standard of living according to the conventions of the day.

How to Measure Poverty?

Poverty is estimated through poverty line. Poverty line is the monetary value of some normative expenditure that is essential for satisfying basic needs. It is the minimum level of income a person or a family needs to live on. A minimum income level used as an official standard for determining the proportion of a population living in poverty.  

Various committees were constituted to define Poverty line and estimate poverty accordingly:

Y.K. Alagh committee (1979):

• Official poverty counts began for the first time in India based on the approach of this Task Force.
• Poverty line was defined as the per capita consumption expenditure level to meet average per capita daily calorie requirement of 2400 kcal per capita per day in rural areas and 2100 kcal per capita per day in urban areas.
• Different poverty line baskets (PLBs) for rural and urban consumption.

Lakdawala Expert Group (1993):

• It did not redefine the poverty line and retained the poverty lines recommended by the Alagh Committee at the national level based on minimum nutritional requirements.
• However, it disaggregated them into state-specific poverty lines to reflect the inter-state price differentials.

Till then, individual’s expenditure on Education and Health were not incorporated in calculating poverty line as it was assumed that these items are provided by the government. But after 1990s, there has been significant increase in the participation of private players in provision of Education and Health. As a result, Tendulkar committee expenditure on these items in calculating the poverty line.

Tendulkar Expert Group (2009):

• It recommended incorporation of private expenditure on health and education while estimating poverty.
• It also recommended a shift away from basing the poverty lines based on intake norms to targeted outcomes. E.g., Shift from basing the poverty lines from calorie norms used in all poverty estimations since 1979 and towards targeting nutritional, educational and health outcomes respectively.
• Instead of two separate PLBs for rural and urban poverty lines, it recommended a uniform all-India urban PLB across rural and urban India.

The latest poverty estimations available were calculated based on the Tendulkar committee method. 

Thus, the poverty estimations in India till now were made based on the consumption expenditure method. Poverty lines are calculated using the normative consumption expenditure required to meet the basic standards of living. However, there are some limitations with this method. Hence Multi-Dimensional Poverty Index (MPI) was poverty to overcome these limitations.

Need for MPI:

• Income deprivation vs Multiple deprivations: Existing consumption-based poverty lime estimates do only emphasis on income-based deprivations ignoring the non-income based deprivations like discrimination based on gender, caste or geographical location in accessing the basic requirements to meet a decent standard of living. 
• Incidence vs Intensity: The existing consumption-based method only emphasis on the incidence of the poverty. Simple headcount related measures do not provide information on the depth of poverty. It can only address the questions like Who is poor? and how many households are poor?  But it fails to reveal the degree of poverty. 

A person who is poor can suffer multiple disadvantages at the same time – like poor health or malnutrition, lack of clean water or electricity, poor quality of work or little schooling. Multi-dimensional poverty reveals a more comprehensive picture of poverty. 

• Policy making: Multi-dimensional Poverty Index not only calculates how many are poor but also calculates how they are poor. policies to reduce income poverty may not affect other deprivations. As a result, Income poverty can’t suggest specific policy directive to the govt. Thus, MPI will help in making evidence-based policy making to alleviate poverty.  
• Relative Poverty: Multi-dimensional poverty index not only measures absoluter poverty but also Relative poverty. 

Multi-dimensional Poverty Index of UNDP

India’s MPI prepared by the NITI Aayog is comprehensive than the index prepared by UNDP. 

However, it is not to say that MPI should replace the consumption-expenditure based poverty estimation. Because, measuring MPI has its own challenges. 

• Gathering of data for multidimensional indicators can be challenging.
• Which and how many dimensions are relevant and should be considered are difficult to quote.
• The weightage given to each indicator can be arbitrary. 

Thus, the shift from a single dimension to multi-dimensional enlarge the scope of the analysis and makes the measurement of poverty more difficult. 

Hence, consumption-based poverty estimation is still relevant to India. But the estimation needs to be strengthened by adding more dimensions like access to nutrition, health, education, access to government services and the quality of the environment.