Lakdawala Committee, Poverty Line, Recommendations, CPI-AL, CPI-IW

The Lakdawala Committee which was constituted in September 1989, played an important role in shaping the method used to estimate poverty in India. The committee examined how poverty lines should be determined and how changes in prices and consumption patterns should be considered. Its recommendations provided the basis for official poverty estimates for several years and helped improve the understanding of poverty levels across rural and urban India.

Lakdawala Committee Background

• Formation of the Committee: The Lakdawala Committee, formally known as the Expert Group on Estimation of Proportion and Number of Poor, was constituted by the Planning Commission in 1989 under the chairmanship of economist D. T. Lakdawala.
• Report Submission: The Committee submitted its report in 1993. Its recommendations became an important basis for India’s official poverty estimation methodology and were formally adopted by the Planning Commission in 1997.
• Earlier Poverty Method: The Committee reviewed the poverty estimation approach associated with the Y. K. Alagh Task Force of 1979. The earlier approach used calorie norms of around 2,400 calories per person per day for rural areas and 2,100 calories for urban areas as the basis for determining the poverty line.
• Place in Poverty Estimation: The Lakdawala methodology remained the basis of official poverty estimates until it was replaced by the Tendulkar Committee methodology. Later, the Rangarajan Committee also reviewed the measurement of poverty. NITI Aayog identifies Lakdawala (1993), Tendulkar (2009) and Rangarajan (2014) as important stages in India’s monetary poverty estimation.

Lakdawala Committee on Poverty Estimation in India

• Calorie-Based Poverty Line: The Lakdawala Committee retained the earlier approach of linking poverty estimation with calorie consumption. The official poverty line continued to be associated with the consumption expenditure required to meet the calorie norms of 2,400 calories in rural areas and 2,100 calories in urban areas.
• Consumption Expenditure: Poverty was measured using per capita consumption expenditure rather than income. The approach used household consumption expenditure data collected through the National Sample Survey (NSS).
• State-Level Approach: One of the major changes introduced by the Committee was the use of state-specific poverty lines for rural and urban areas. This recognised that prices and the cost of living differed across different states.
• Separate Rural and Urban Lines: Poverty lines were maintained separately for rural and urban areas, reflecting differences in consumption patterns, prices and living conditions between the two sectors.

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Lakdawala Committee Methodology

• Base Poverty Line: The methodology retained the poverty-line approach based on the calorie norms established under the earlier framework. The consumption basket associated with these norms was used as the basis for determining the poverty line.
• State-Specific Poverty Lines: The Committee recommended that poverty lines should be prepared separately for different states rather than using one uniform all-India poverty line. This allowed differences in state-wise price levels and cost of living to be reflected in poverty estimates.
• Rural Price Index: For updating the rural poverty line over time, the methodology used the Consumer Price Index for Agricultural Labourers (CPI-AL). This was intended to reflect changes in prices relevant to the rural population.
• Urban Price Index: For urban areas, the methodology used the Consumer Price Index for Industrial Workers (CPI-IW) to update the poverty line according to changes in prices.
• Use of NSS Data: The Committee recommended discontinuing the practice of adjusting NSS consumption data to match National Accounts Statistics (NAS) estimates. The poverty estimates were instead to rely directly on NSS consumption expenditure data.
• Planning Commission Modification: The Expert Group had suggested using an average of CPI-IW and the Consumer Price Index for Urban Non-Manual Employees for updating the urban poverty line. The Planning Commission later simplified this and decided to use CPI-IW alone for the urban poverty line.

Lakdawala Committee Recommendations

• Continue the Calorie-Based Approach: The Committee recommended continuing the poverty-line approach based on calorie consumption, while using consumption expenditure to identify the expenditure level associated with the required calorie intake.
• Introduce State-Specific Poverty Lines: It recommended separate state-specific poverty lines for rural and urban areas so that differences in prices and living costs across states could be reflected more accurately.
• Use CPI-AL for Rural Areas: The Committee recommended using the Consumer Price Index for Agricultural Labourers (CPI-AL) to update poverty lines in rural areas.
• Use CPI-IW for Urban Areas: For urban areas, the poverty line was to be updated using the Consumer Price Index for Industrial Workers (CPI-IW). The Planning Commission adopted CPI-IW as the urban index with a minor modification to the original recommendation.
• Stop NAS Scaling: The Committee recommended discontinuing the adjustment or ‘scaling’ of NSS poverty estimates to National Accounts Statistics. Poverty estimation was to rely on NSS consumption expenditure data instead.

Lakdawala Committee Significance

• More Regional Approach: The introduction of state-specific poverty lines was significant because it recognised that the cost of living was not the same across India. This made the poverty estimation framework more sensitive to regional price differences.
• Greater Reliance on NSS Data: By recommending the use of NSS consumption expenditure data without scaling it to National Accounts Statistics, the Committee brought greater consistency to the data used for official poverty estimation. The Planning Commission adopted this approach from 1997.
• Official Poverty Estimates: The Lakdawala methodology was used for official poverty estimates for several years. For example, the all-India poverty ratio was estimated at 36.0% in 1993-94 and 27.5% in 2004-05 under this methodology.
• 2004-05 Rural and Urban Estimates: For 2004-05, the Lakdawala methodology estimated poverty at 28.3% in rural areas, 25.7% in urban areas and 27.5% for India as a whole.
• Role in the Evolution of Poverty Measurement: The Lakdawala Committee became an important stage in the evolution of India’s poverty measurement system. Its methodology was later reviewed because of concerns that the existing poverty line did not adequately reflect changes in consumption patterns and the rising importance of expenses such as health and education.

Lakdawala Committee Limitations

• Continued Calorie Focus: A major limitation was its continued dependence on calorie-based poverty norms. As consumption patterns and living standards changed, a calorie-based benchmark alone became less suitable for capturing the broader nature of poverty.
• Limited Coverage of Essential Expenses: The methodology did not adequately account for rising private expenditure on essential services such as health and education. The later Tendulkar methodology specifically addressed this limitation.
• Fixed Consumption Basket: The Lakdawala approach kept the underlying poverty-line basket largely fixed while updating its monetary value for price changes. This meant that changes in the consumption patterns of households over time were not fully reflected.
• Cost-of-Living Concerns: The use of CPI-AL and CPI-IW for updating poverty lines was also questioned because these indices were not necessarily sufficient to capture the changing consumption and cost-of-living patterns of poorer households.
• Narrow Measure of Poverty: The methodology primarily measured poverty through consumption expenditure and did not capture several non-monetary dimensions of deprivation. This contributed to the subsequent shift towards broader approaches to understanding poverty. NITI Aayog notes that poverty has multiple dimensions, including access to basic services and other aspects of quality of life.
• Replacement by Tendulkar Methodology: These limitations contributed to the appointment of the Tendulkar Committee in 2005, which submitted its recommendations in 2009 and introduced major changes to poverty estimation. The Lakdawala methodology was subsequently replaced by the Tendulkar approach.