Consumption Expenditure and Poverty Estimation

India estimates monetary poverty mainly by comparing household consumption spending with a prescribed poverty line. Household survey data are converted into per capita consumption expenditure, providing a welfare proxy when income is difficult or volatile to measure.

From household spending to MPCE

Sample surveys collect the quantity and value of goods and services consumed by households, including relevant non-cash consumption. Total expenditure is divided by household size to obtain monthly per capita consumption expenditure, or MPCE, which acts as a proxy for material living standards.

• Different goods are recorded for specified reference periods because frequent and infrequent purchases cannot be recalled equally well.
• The Uniform Reference Period, Mixed Reference Period and Modified Mixed Reference Period differ in the recall periods used for various consumption items.
• Survey weights are used to make estimates representative of the population.

Applying the poverty line

A poverty line specifies the minimum per capita consumption expenditure required under the chosen methodology. Separate rural and urban lines are adjusted for interstate price differences and changes in prices over time.

• Each household's MPCE is compared with the applicable poverty line, and its members are classified as poor when MPCE falls below that line.
• The weighted proportion of persons below the line gives the headcount ratio, commonly called the poverty ratio.
• The Tendulkar Committee methodology moved beyond direct calorie anchoring and used a broader consumption basket while allowing for private expenditure on health and education.

Why consumption is used, and its limits

Consumption is generally more stable than current income and is easier to measure for households with seasonal, informal or self-employed earnings. It can therefore capture some consumption smoothing through savings, borrowing and transfers.

• Estimates remain sensitive to recall errors, under-reporting, survey design, price indices and the chosen poverty line.
• MPCE averages resources across household members and does not reveal unequal distribution within the household.
• Consumption poverty does not by itself measure deprivations in health, education, housing, nutrition or access to public services.