Estimation and determination of chronic poverty in India: an alternative approach. CPRC Working Paper No. 90

Abstract

The chronically poor are generally identified using longitudinal household panel data on income or expenditure. The basic motivation for our approach is to overcome the absence of a nationally representative panel data in analysing chronic poverty issues. A household is identified as chronically poor if its income is below the poverty line and if its children are suffering from malnutrition for a longer period of time. Making use of a set of common variables available in two nationally representative surveys (that deal with the estimation of consumer expenditure and malnutrition), the incidence of chronic poverty is estimated among the different social groups and across the various states of India. The paper aims to improve our understanding of the determinants of chronic poverty by considering economic, demographic and social factors. It attempts to answer specific questions such as: how important is household income as a determinant of chronic poverty? What factors inhibit escape from chronic poverty? How different are the 'other poor' from the chronically poor? Demographic pressure, low wage rates for households offering labour in rural and urban areas, low household income, and social factors all have a significant impact on chronic poverty. Chronically poor households tend to be concentrated at the lower end of family lifecycle. The 'other' poor households may be able to move out of chronic poverty because of their small household size, as well as the more intensive use of labour, including child labour. While the wage rates of labour households do not show much difference between the chronic and other poor households, they are substantially higher for non-poor households. Hence, a higher wage rate is of paramount importance in lifting labour households from poverty. Improvement in household income is crucial for reducing the incidence of both chronic poverty and other poverty. A 10 percent increase in the per capita expenditure of chronically poor households would lift about one-third of these families from chronic poverty and onesixth of them from poverty. Roughly, a 60 percent increase in per capita expenditure would be required to lift all chronically poor households from poverty. This would be a stupendous task, considering the fact that in the 1990s per capita expenditure of the bottom 30 percent increased at 1.5 percent per annum