On the Choice of Appropriate Consumer Price Indices and Data Sets for Estimating the Incidence of Poverty in India

After reviewing the available data sets and price deflators used by the Planning Commission for estimation of poverty, this paper constructs some new consumer price indices which are considered more appropriate for updating the base year poverty lines. Three major factors, which crucially affect the poverty computation, have been identified and sensitivity analysis has been attempted to show the separate impact of each of these factors on the poverty estimates. Our analysis shows that the official estimates of poverty incidence suffer from many serious shortcomings, which lead to underestimation of the incidence of poverty in the country. Some suggestions for further research have also been made.