A BRIEF OVERVIEW OF THE PREVIOUS CLASS (05:01 PM)

CHANGE IN METHODOLOGY IN CPI SINCE 2022-23 (05:03 PM)

• In CPI combined- 

• Groups	Weightage
  (1) Food and beverages	45.9
  (2) Pan, tobacco, and intoxicants	2.4
  (3) Clothing and footwear	6.5
  (4) Housing	10.1
  (5) Fuel and light	6.8
  (6) Miscellaneous	28.3

• Traditionally, “core inflation” is calculated by excluding ‘food and beverages and fuel and light groups from overall inflation.
• While in CPI-C (Consumer Price Index-Combined), major fuel items such as petrol for vehicles and diesel for vehicles, which have relatively large weights, are not included in fuel and light
• These fuel items are included in transport and communication, a subgroup under the miscellaneous group.
• Therefore, the conventional way of calculating retail core inflation, instead of excluding the volatile fuel items from core inflation, continues to include volatile fuel items in core inflation. As a result, the fuel price rise continues to impact core inflation.
• Refined core inflation- It excludes main fuel items like petrol for vehicles, diesel for vehicles, lubricants, and other fuels for vehicles, in addition to food and beverages and ‘fuel and light’ from the headline retail inflation.
• From 2022-23, Petrol and Diesel are put under a separate sub-heading i.e. Transportation. 
• 

POVERTY ESTIMATION IN INDIA (05:20 PM)

• Methods to measure absolute poverty 
• 1) Uniform Recall period 
• Until 1993-94, the poverty line estimated by NSSO was based on URP. Under URP, consumption data for all items (Food + Non-food) is calculated for a 30-day period i.e. when URP is applied the households are surveyed about their consumption in the last 30 days preceding the date of the survey. 
• 2) Mixed Recall period 
• From 1999-2000, NSSO started using MRP instead of URP.
• MRP takes into account consumption expenditure data of five Non-food items (Clothing, footwear, durable goods, Education, and Institutional medical expenses) for a 365-day recall period and the consumption data for the remaining items is collected for a 30-day recall period. 
• 3) Modified Mixed Recall Period
• It is the most recent concept. MMRP was suggested by Rangarajan Committee
• Under MMRP, 
• a) 365-day Recall period is used for clothing, footwear, education, institutional medical care, and durable goods. 
• b) 7-day recall period is used for edible oil, Eggs, Fish, Meat, Vegetables, Fruits, Spices, Processed foods, etc.
• c) 30-day recall period for remaining food items, Fuel & light, Miscellaneous goods, and Services including Rent. 

COMMITTEES (06:06 PM)

• SURESH TENDULKAR COMMITTEE 
• It submitted a report in 2009
• Shift from URP to MRP
• Uniform poverty line basket for Urban and Rural areas i.e. Urban poverty line basket for Rural also. 
• The poverty line is indexed to CPI inflation
• It includes private expenditure on health and education in the determination of the poverty line
• Poverty estimates continue to be based on household consumption expenditure data (Suresh Tendulkar committee focused on Individuals as the criteria). 
• Suresh Tendulkar's committee suggested slowly moving away from the Food calorie method of Estimating the poverty line
• 2011-12 data, according to Suresh Tendulkar committee, HCR is 21.9%. 
• Rangarajan Committee
• It uses MMRP methods 
• Along with calories, Protein and Fat are also used to compute the expenditure 
• It uses a separate poverty line basket for both rural and urban areas. 
• 2011-12 data- Headcount ratio is 29.5%.

POVERTY AND GROWTH (06:14 PM)

• It is obvious enough that economic growth is extremely helpful in removing poverty, this is because the poor can directly share the increased wealth and the income generated by the economic growth and also because the overall increase in national prosperity can help in financing public services including health care and education. 
• This does not, however, make economic growth the only means, or the principal means of poverty removal because of three reasons- 
• 1) Poverty reflects other kinds of deprivation ranging from the prevalence of preventable or curable diseases to social exclusion and political liberty.
• 2) Enabling the role of basic education, good health, micro-credit facilities, land reforms, social security arrangements, Environmental sustainability, legal provisions, and related factors.
• 3) Fruits of economic growth may not be automatically utilized to expand basic social services, For Example- South Korea did much better in channelizing resources to education and health care than Brazil which also focused on faster economic growth and this has helped South Korea to achieve growth with equity (Inclusive growth). 
• However, South Korea also neglected arrangements for social security and was greatly affected during the 1997 south-east Asian crisis.
• Removal of poverty and deprivation requires more than relying on one simple associative connection between economic growth and the incomes of the poor.
• The strength of the relationship between growth and poverty is usually measured by poverty elasticity with respect to per capita GDP.
• In India poverty elasticity is low, indicating the failure of the trickle-down theory especially after the 1991 reforms.
• Empirical studies reveal that a lack of assets such as land, human capital, and skills, constrain the poor from participating in and benefitting from growth.
• Employment generation schemes like MGNREGA and other pension schemes of the government can make a difference in the life of those excluded from the growth process.
• Question- Is inclusive growth possible under a market economy? State the significance of financial inclusion in achieving economic growth in India. UPSC Mains (150 words/ 10 marks)
• Approach- Use points from the Poverty, Unemployment, and Inclusive Growth.
• a) Progressive taxation- Principle of equity. Also, redistribution should be efficient. 
• b) Corporates should focus on corporate social responsibility (CSR). 
• c) Excessive focus on primary education to remove the poverty trap.
• If corruption would have been less, then our GDP growth would be higher by 5%- World Bank
• d) Political rights such as the Right to vote especially for the tribal areas and access to resources
• e) Effective public infrastructure
• f) Land reforms, Credit facilities, Institutionalization of credit, Financial inclusion, and empowering individuals to use the government schemes. 
• g) Issue of secondary poverty does not take into account.  
• h) Issues of handling poverty are dependent on Fragmented landholdings or inefficient land output. 
• i) Group power- Microcredit practices, Cooperatives, etc need to be strengthened. 
• Universal Basic Income- Universal + Unconditional
• Positives of UBI-
• It will reduce the discussion of absolute poverty
• This program will promote the Market economy
• People's purchasing power will increase thus leading to an increase in Consumption expenditure and this will increase the GDP.
• The lower section can have higher bargaining power. 
• It will lead to a decrease in administrative costs. 
• Negatives of UBI 
• Inflation may increase
• The fiscal deficit may increase.
• People should also know how to use the bank account
• It may make existing schemes ineffective 
• It can increase secondary poverty, (People may spend on other purposes which may be not useful)
• Reduce labour force participation rate. 
• It may make the labour force lazy and lethargic. 

LIMITATION OF HEADCOUNT NON-DISCRIMINATORY APPROACH (07:20 PM)

• The poverty line once determined remains quite insensitive to the plight of the people suffering from various degrees of poverty i.e. The poverty line is insensitive to whether the person is earning Rs 45 or Rs 25 (Poverty line= 50) but in terms of the agony of the person, the two situations are different. 
• Amartya Sen rightly argued that the poor are not an economic class nor a convenient category to use for analyzing social and economic movements. 
• The policies to tackle poverty must go beyond the concept of the poverty line i.e. the need for discrimination is essential. 

CRITICAL EVALUATION OF STRATEGY FOR POVERTY ALLEVIATION (07:25 PM)

• The present approach is nearly blind to the existence of secondary poverty. 
• Secondary poverty is defined as the condition in which earnings would be sufficient for the maintenance of basic requirements provided it is not absorbed into wasteful expenditures like drinking, gambling, inefficient housekeeping, etc
• The programs have not targeted the disabled, sick, and socially handicapped who can not participate in the normal economic activity
• Many rural poor depend on natural resources for their livelihood, however, the practice of using these resources is no longer viable (especially in tribal areas)
• The government has failed to make necessary changes in anti-poor policies and laws as these policies harm the poor particularly tribals who depend on forest resources for their survival
• The household approach focused on self-employment or wage employment guarantee
• It is not appropriate to handle employment without efficient skill development programs and increased demographic pressures.  
• Due to fragmented land holdings, inefficient credit systems, and disguised unemployment, poverty alleviation programs have to focus on building "Group Power" (Self-help groups, Cooperative farming, etc) for increasing the incomes of the poor and preventing the perpetuation of exploitative practices. 

MULTI-DIMENSIONAL POVERTY INDEX (07:40 PM)

• UNDP + Oxford Poverty Human Development Initiative, on the basis of deprivation. 
• It measures poverty with respect to access to various basic amenities which is classified into 10 main indicators under education, health, and standard of living. (Refer to PPT)
• Suresh Tendulkar V/s MPI 

• Suresh Tendulkar committee	MPI
  Unidimensional monetary measure	Multi-dimensional i.e. Deprivations in various basic amenities
  It is based on the assumption that Money will ensure all basic amenities	It is an outcome-based approach i.e. actual access to basic amenities

• 
• A person is considered multidimensionally poor if he/ she is deprived in at least 1/3rd of the weighted indicators shown above. In other words, the cut-off for poverty is 33.33%. 

The Topic for the next class:- Destitute Lines in Poverty, and Inequality.