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Context: According to a recent NITI Aayog report on multidimensional poverty, the percentage of the poor has decreased from 25% in 2015-16 to 15% in 2019-21, with over 135 million people pulled out of poverty during this period. The recently released United Nations Development Programme (UNDP) and Oxford Poverty & Human Development Initiative (OPHI) Global Multidimensional Poverty Index report for 2023 also shows that the incidence of the multidimensional poverty index has decreased from 27.5% in 2015-16 to 16.2% in 2019-21.

Details

• The Global Multidimensional Poverty Index (MPI) report praised India's progress in reducing multidimensional poverty between 2005/06 and 2015/16, it highlights that poverty estimates based on consumption expenditure, using methodologies like the Tendulkar and Rangarajan Committee methods had already shown reductions in the number of poor people over specific periods.
• While the multidimensional poverty index and consumption-based methods both show progress, there can be differences in the absolute numbers and ratios. The poverty ratios calculated using different methodologies may not align exactly due to variations in the approach and indicators used.

Consumption-Based Poverty Estimates

• Consumption-based poverty estimates are a widely used approach to measure poverty and well-being. This method focuses on individuals' or households' consumption patterns as an indicator of their economic welfare.
• By analyzing consumption patterns, policymakers and researchers can gain valuable insights into the material conditions of people's lives, enabling them to make informed decisions to address poverty and inequality effectively.
• This approach provides a comprehensive view of people's access to goods and services, which is essential for shaping targeted policies and interventions. It's an integral part of understanding the socioeconomic dynamics and devising strategies to uplift those in need.

Features

Income vs. Consumption

• While income is the amount of money an individual or household earns over a given period, consumption reflects the actual spending on goods and services during that same period. Consumption provides a more accurate representation of a person's well-being because it directly indicates what they can afford and utilize. For instance, a person might have a high income but choose to save a significant portion, resulting in a lower consumption level

Direct Measure

• Consumption data is collected through surveys and questionnaires that ask individuals about their spending habits. These surveys typically cover various categories of expenditures, such as food, housing, transportation, healthcare, entertainment, and more. By directly asking individuals about their expenditures, consumption data can provide a comprehensive view of how people allocate their resources.

Indirect Indicators

• Consumption-based estimates can indirectly indicate the level of access individuals have to essential services. For instance, higher spending on education, healthcare, and nutrition can be indicative of better access to these services. Conversely, lower spending in these areas might suggest limited access to essential services. Thus, consumption data can serve as a proxy for assessing the quality of life and access to basic needs.

Poverty Lines

• Poverty lines are thresholds used to define the minimum level of consumption required to maintain a basic standard of living. By establishing these lines, policymakers can identify individuals or households living below the poverty line and target interventions to improve their living conditions. Consumption-based poverty measures help to focus on the actual living standards of individuals rather than just their income.

Significance

Accurate Measurement

• Consumption-based measures offer a more accurate depiction of individuals' well-being because they consider both the monetary and non-monetary dimensions of poverty. While income measures provide valuable information, they might not capture the full scope of people's living conditions. Consumption data take into account how people use their resources to meet their daily needs, which includes factors like access to education, healthcare, and other essential services.

Policy Design

• Consumption-based estimates play a crucial role in shaping effective poverty alleviation programs. By identifying the specific areas where individuals or communities are deprived in terms of necessities and quality of life, policymakers can design targeted interventions. For instance, if a certain group of people is found to be spending significantly less on healthcare, a policy could be tailored to improve healthcare accessibility and affordability for that group.

Monitoring Progress

• Tracking changes in consumption-based poverty measurements over time enables policymakers to gauge the effectiveness of their poverty reduction strategies. If consumption levels increase among previously deprived sections of the population, it suggests that the implemented policies are making a positive impact. Conversely, if consumption levels remain stagnant or decrease, it may indicate the need for adjustments in the strategies to ensure that poverty reduction goals are being met.

Steps Taken by India

Methodological Committees

• India has established expert committees to enhance its poverty measurement methodologies. The Tendulkar Committee and the Rangarajan Committee are examples of these committees. Their primary objective is to develop and refine the methodologies used to determine poverty thresholds and assess the poverty situation in the country. These committees bring together experts from various fields to ensure that poverty measurements are accurate and reflective of the country's changing economic and social landscape.

Periodic Surveys

• The National Sample Survey (NSS) conducts regular consumption expenditure surveys to collect data on households' spending patterns. These surveys provide valuable insights into how individuals and families allocate their resources across various categories of goods and services. By analyzing this data, policymakers can identify trends in consumption behaviour and assess the impact of economic policies on households' well-being.

Poverty Line Calculation

• India's official poverty line is calculated based on survey data gathered from the NSS and other sources. This line represents the minimum consumption expenditure required to meet basic needs and maintain a certain standard of living. By determining this threshold, policymakers can identify individuals or households living below the poverty line and design targeted interventions to improve their conditions.

Way Forward

Improved Data Collection

• High-quality data collection methodologies are essential for obtaining accurate consumption estimates. Governments and organizations should invest in modern data collection techniques, including digital surveys and data analytics, to ensure that the information collected is timely, comprehensive, and representative of the population.

Incorporate Non-Monetary Indicators

• Poverty is a multidimensional issue that extends beyond income and consumption. By integrating non-monetary indicators such as health, education, sanitation, and access to basic services, policymakers can gain a more holistic view of individuals' well-being and the challenges they face.

Address Inequality

• Combining consumption-based estimates with efforts to reduce income and wealth disparities is vital. Policies that aim to bridge these gaps can contribute to a more equitable distribution of resources and opportunities, ultimately leading to more sustainable poverty reduction 

Regular Reassessment

• Poverty lines should be regularly reviewed and updated to account for changes in consumption patterns and inflation rates. This ensures that the threshold for defining poverty remains relevant and reflective of the evolving economic landscape.

Holistic Approach

• Adopting a holistic approach that considers both income and non-income dimensions of poverty is key to crafting effective poverty reduction strategies. By addressing not only material needs but also factors like education, healthcare, and social support, governments can create more comprehensive and sustainable interventions.

Conclusion

• Consumption-based poverty estimates provide a nuanced perspective on well-being by considering spending habits and access to essential services. These measures, combined with non-monetary indicators, offer a holistic view of poverty. Regular updates to poverty lines and efforts to address inequality enhance the precision of measurement. With improved data collection methods, governments can design more targeted and impactful poverty reduction policies.

Must-Read Articles:

POVERTY IN INDIA: https://www.iasgyan.in/daily-current-affairs/poverty-in-india-4

EXTREME POVERTY IN INDIA: https://www.iasgyan.in/daily-current-affairs/extreme-poverty-in-india

MULTIDIMENSIONAL POVERTY INDEX (MPI): https://www.iasgyan.in/daily-current-affairs/multidimensional-poverty-index-mpi

GLOBAL MULTIDIMENSIONAL POVERTY INDEX: https://www.iasgyan.in/daily-current-affairs/global-multidimensional-poverty-index

PRACTICE QUESTION Q. Consumption-based poverty estimates provide a nuanced perspective on well-being by considering spending habits and access to essential services. These measures, combined with non-monetary indicators, offer a holistic view of poverty. Regular updates to poverty lines and efforts to address inequality enhance the precision of measurement. With improved data collection methods, governments can design more targeted and impactful poverty reduction policies.

https://www.thehindu.com/opinion/lead/consumption-based-poverty-estimates-have-relevance/article67198333.ece