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Alternative Approaches to Measuring Temporal Changes in Poverty with Application to India

Keywords: South Asia , India , Nutrient Prices , Poverty Rates

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This paper uses a new procedure suggested in Coondoo et. al. (2004)for setting and updating the poverty line to take account ofinflation and changing tastes. The procedure, which is based on theestimation of nutrient prices, takes an ``absolute'' view of povertythat is rooted in the idea of age and gender specific minimumcalorie requirements to be obtained from a ``balanced diet'' ofnutrients. This study goes beyond recent investigations on the linkbetween calorie and food expenditure by working in nutrient spaceand enforcing the idea of a ``balanced diet'' of the principalenergy generating nutrients that would not be possible by focussingon calorie alone. Moreover, the proposed procedure of usingestimated nutrient price indices to calculate cost of living indicesprovides a novel way of overcoming the problem of itemcomparability, definitions, missing items, etc. that affect thetraditional cost of living indices based on food items.Household level data from the individual states in India are used tocalculate and compare alternative poverty rates over a time periodthat includes the period of recent economic reforms. The applicationto Indian data makes it particularly interesting given the regionalheterogeneity in food expenditure patterns. Also, since the studycovers the period of recent economic reforms in India, the resultson the temporal movement in the state wise poverty rates are ofconsiderable policy interest. The poverty rates obtained from theapplication of the nutrient price based new procedure are comparednot only with the official poverty rates but also with thoseobtained from a constrained minimisation of food expenditure thatyields the “shadow price” of nutrients. In several cases, theofficial poverty figures seem to understate poverty compared tothose obtained from calorie/nutrient norms. Moreover, while theofficial poverty rates generally show declining poverty in Indiaduring the decade of the `90s., this is not true of the alternativepoverty estimates.A significant by product of this study is that we have proposed andimplemented a new procedure for constructing spatial price indices,based on the application of the multi lateral EKS index to theestimated nutrient prices. The paper exploits the attractiveproperty of circular consistency of the EKS index in calculating thespatial nutrient price index over the sixteen major States of theIndian Union. The estimated values are used to rank the States withrespect to their nutrient prices. These are then compared with thoseobtained from the unit value of the Food items, both with respect totheir

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