Poverty measurement, poverty lines and consumer price indexes in India: A critique

Type Conference Paper - Revisiting poverty issues: Measurement, identifications and eradication strategies
Title Poverty measurement, poverty lines and consumer price indexes in India: A critique
Publication (Day/Month/Year) 2007
City Patna
Recent debates about spatial and social patterns, and trends in poverty in India have drawn attention to major problems with the poverty calculations. Tarrozi and Deaton (1999) and Deaton (2003a, 2003b and 2005) show that the consumer price indexes and poverty lines used in official poverty calculations are seriously flawed and suggest alternative poverty lines using Unit Value Consumer Price Indexes (UVCPIs) calculated directly from the NSS Consumer Expenditure Surveys, anchored in the All India Official Rural Poverty Line for the 43rd Round. Other authors support the view that the official poverty lines are seriously flawed (Sen and Himanshu, 2004a & b; Himanshu, 2007; Dev and Ravi, 2007) and seemingly see value in the UVCPI approach. Dubey and Palmer-Jones (2005a, 2005b, and 2005c) argue that the UVCPI method, though it has some utility, is not sufficient by itself to remedy the deficiencies in official poverty line calculations. We suggest that poverty calculations that draw on either the official or UVCPI methods have insuperable theoretical flaws and policy conclusions based on them should be re-examined and qualified. Among our criticisms are that UVs are not appropriate “prices” to use in CPIs for updating poverty lines; nor are the prices used in official CPI calculations. The UVs available from NSS CES data cover a (variable and diminishing) proportion of household expenditure, which anyway does not cover a number of variables that affect the transformation of consumption into well-being. State rural and urban sectors are not homogenous units appropriate for the calculation of poverty lines, and more appropriate geographical (and social) classifications are required. Consequently, it is not surprising that other measures of well-being do not correlate strongly well with money-metric poverty. Here, we summarise our empirical and theoretical critiques of the Official CPIs and UVCPI methods, incorporating recent data from the 61st Round. We suggest that thorough overhauls of the official poverty lines and CPIs and the NSS CES methodologies are required even if this implies limited continuity with earlier measures. We also question why some authors have rushed to apply these dubious PLs to the 61st Round, drawing strong policy conclusions, and why such obviously flawed methods are so widely used despite their obvious deficiencies.

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