This paper, the second in a series of three, examines the calculation of poverty lines using Unit Value Consumer Price Indexes (UV CPIs). We suggest that using UV CPIs to account for temporal change and spatial variation in prices in the production of poverty lines does not appear to be a good strategy. Here we point out what we see as a flaw in the method used to calculate Poverty Lines for different states and sectors from a single base Poverty Lines. Further, we argue that neither UV nor official price indexes represent true cost of living indexes because they ignore “environmental” variables that differ between domains and affect the transformation of consumption into well-being. This results in problems of comparability suggesting that the PLs that can be calculated from household expenditure surveys such as the NSS CES do not correspond to the same level of well-being in different domains and thus do not generate poverty measures that compare differences in ill-being rather than differences in the yardstick by which well-being is assessed. A thorough overhaul of poverty line calculations is required, but welfare comparable poverty lines cannot be based on normative calorie requirements.
Artha Vijnana (2005) XLVII (3-4) 259-286
Prices, Price Indexes and Poverty Counts in India during 1980s and 1990s: from CPIs to Poverty Lines?