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January 24, 2014

NATIONAL & SOCIAL ISSUES

POVERTY ESTIMATION & INDICATORS (Continued from yesterday’s post)

OBJECTIVES OF POVERTY ESTIMATION

1. To build awareness on poverty and to keep it in the agenda of discourse;
2. To design policies, programs and institution to alleviate poverty
3. To monitor and evaluate these policies, programs and institutions that are associated with it.

INTERNATIONAL POVERTY ESTIMATION

• According to World Bank, Extreme poverty is defined as average daily consumption of $1.25 or less and means living on the edge of subsistence, while the daily consumption of $ 2 defines moderate poverty.

OFFICIAL POVERTY ESTIMATION IN INDIA

• Poverty estimates in India, since 1979 has been done by the Planning Commission using data from NSS surveys(National sample survey) on household consumption expenditure.
• The major developments in this regard are as following:
• In 1962, the Planning Commission constituted a working group to estimate poverty nationally, and it formulated separate poverty lines for rural and urban areas – of Rs 20 and Rs 25 per capita per year respectively.
  • VM Dandekar and N Rath made the first systematic assessment of poverty in India in 1971, based on National Sample Survey (NSS) data from 1960-61.  They argued that the poverty line must be derived from the expenditure that was adequate to provide 2250 calories per day in both rural and urban areas.  This generated debate on minimum calorie consumption norms while estimating poverty and variations in these norms based on age and sex.

Alagh Committee (1979)

•  In 1979, a task force constituted by the Planning Commission for the purpose of poverty estimation, chaired by YK Alagh, constructed a poverty line for rural and urban areas on the basis of nutritional requirements. It recommended 2400 kilocalories for rural areas and 2100 kilocalories for urban areas.  Poverty estimates for subsequent years were to be calculated by adjusting the price level for inflation.

Lakdawala Committee (1993)

• In 1993, an expert group constituted to review methodology for poverty estimation, chaired by DT Lakdawala, made the following suggestions:

1. Consumption expenditure should be calculated based on calorie consumption as earlier;
2. State specific poverty lines should be constructed and these should be updated using the Consumer Price Index of Industrial Workers (CPI-IW) in urban areas and Consumer Price Index of Agricultural Labour (CPI-AL) in rural areas; ( earlier it was based on wholesale price index) and
3. Discontinuation of ‘scaling’ of poverty estimates based on National Accounts Statistics.  This assumes that the basket of goods and services used to calculate CPI-IW and CPI-AL reflect the consumption patterns of the poor.

• This method, in turn, received its share of analysis and criticisms. These criticisms centered on the method used for price adjustment, the rural urban differentials in poverty and inter-alia the continued relevance of the 1973 basket for poverty comparisons. The main concern was the under-counting of the poor specifically from the view point of targeted programs.

To be continued ..

Announcement of 12 subsidised cylinders

• Congress vice-president Rahul Gandhi’s appeal to raise the cap on subsidised LPG cylinders could force Finance Minister P. Chidambaram to relax the expenditure ceiling his ministry had imposed on the Oil Ministry.
• If the government raises the annual cap from nine to 12, the higher subsidy outgo will force the Oil Ministry to breach the ceiling, sources said. The Ministry estimates the additional burden at nearly Rs. 7,000 crore.
• Asked for its reaction, Finance Ministry sources said they would take a call on relaxing the expenditure ceiling on receiving the Oil Ministry’s proposal.
• Under the current LPG cylinder regime, 89.2 per cent of the 15 crore LPG consumers are covered. The remaining 10 per cent buy the additional requirement at the market price.
• If the quota is raised to 12, about 97 per cent of the consumers will be covered.
• Increasing the limit to 12 cylinders is likely to result in an additional fuel subsidy burden of Rs. 3,500 -5,800 crore.
• The government already incurs an expenditure of Rs. 46,000 crore per annum as subsidy on LPG.
• In a move that is likely to hit currency hoarders and counterfeiters, the Reserve Bank of India (RBI) has decided to withdraw from circulation all currency notes issued prior to 2005.
• “The public can easily identify the notes to be withdrawn as the notes issued before 2005 do not have on them the year of printing on the reverse side,” the RBI said.
• From July 1, however, those wanting to exchange more than 10 pieces of Rs.500 and Rs.1000 notes in a bank where they do not have an account will have to provide proof of residence and identity.
• The move will flush out black money, according to bankers.
• Notes issued after 2005 have added security features that make counterfeiting difficult.
• The UPA government has formed a three-member Cabinet committee to examine the possibility of opening up agricultural land to Foreign Direct Investment (FDI), following a proposal by the Urban Development Ministry on letting foreign realtors buy agricultural land.
• The committee includes Urban Development Minister Kamal Nath, Finance Minister P. Chidambaram and Commerce and Industry Minister Anand Sharma.
• At present, FDI is banned in farm land. Further, Indian banking rules disallow loans for the purchase of farm land even for domestic investors — except in the case of large-scale projects — to safeguard against speculative land acquisition and hoarding.
• The Ministry’s argument is that as farm land is already being acquired for township development, FDI would only help raise more funds for the purpose. Real estate developers would in any case be applying for land use change after acquiring farm land, the Ministry said.

ECONOMICS

RBI’s initiative to tackle black money

• In a move that is likely to hit currency hoarders and counterfeiters, the Reserve Bank of India (RBI) has decided to withdraw from circulation all currency notes issued prior to 2005.
• “The public can easily identify the notes to be withdrawn as the notes issued before 2005 do not have on them the year of printing on the reverse side,” the RBI said.
• From July 1, however, those wanting to exchange more than 10 pieces of Rs.500 and Rs.1000 notes in a bank where they do not have an account will have to provide proof of residence and identity.
• The move will flush out black money, according to bankers.
• Notes issued after 2005 have added security features that make counterfeiting difficult.

 Cabinet to take decision on FDI in farm land

• The UPA government has formed a three-member Cabinet committee to examine the possibility of opening up agricultural land to Foreign Direct Investment (FDI), following a proposal by the Urban Development Ministry on letting foreign realtors buy agricultural land.
• The committee includes Urban Development Minister Kamal Nath, Finance Minister P. Chidambaram and Commerce and Industry Minister Anand Sharma.
• At present, FDI is banned in farm land. Further, Indian banking rules disallow loans for the purchase of farm land even for domestic investors — except in the case of large-scale projects — to safeguard against speculative land acquisition and hoarding.
• The Ministry’s argument is that as farm land is already being acquired for township development, FDI would only help raise more funds for the purpose. Real estate developers would in any case be applying for land use change after acquiring farm land, the Ministry said.