Absolute Poverty Measurement and Analysis by HCR and PGI method

Different nations, national and international institutions have

used various tools to measure poverty. The commonly used (HCR and PGI) measure of Poverty is explained as below.

1) Head Count Ration (HCR)

HCR refers to the number of people in a society living below the poverty line fixed based on some minimum consumption level. So far it is the most widely used measure of poverty in all the countries. It can be expressed as:

Head Count Ratio (HCR) = H/N

Where, N = The number of populations.

           H = The number of persons having income below the poverty line.

Example: If a country in a certain period has a total population of one billion with 600 million below the poverty line. Then, 

Head Count Ratio (HCI) = 1 million/600 billions  = 0.6 = 60%

It means, 60 percent of the country's population is below the poverty line.

 

Draw Backs:

1. HCR method of measuring the poverty index is easy to understand and calculate, but fails to the extent that a poor's income falls below the poverty line. It is noteworthy that the change in the incidence of poverty over time in a country also possesses several problems because it raises the questions as to which price index number ought to be used to find the real income or consumption expenditure required to meet the minimum basic need.

2. It does not indicate the severity or depth of a poor. For example, if two countries are at the same poverty line but they may be different in severity.

 3. It does not mention income inequality.

 4. It measures individual, not household poverty. 

 

Poverty Line:

The national poverty line is the aggregate of the food and the non-food poverty lines. The revised official poverty line in 2022-23 is estimated at NRs. 72,908 per person per year. In contrast, the 2010-11 poverty line was set at NRs. 19,261 per person per year, which when adjusted for inflation over the 2010-11 to 2022-23 period - stands at NRs. 42,845 per person per year.

(Table 1)

(Source: Nepal Living Standards Survey IV, 2079/80)

 

2. Poverty Gap Index (PGI)

The head count ration as a measure of poverty suffers from major drawback. It does not indicate the severity or depth of a poor person. Thus, the poverty gap Index seeks to measure the severity or depth of poverty of a person.

Suppose, Y_p represent poverty line income and Y_i stands for income of individuals for consumption expenditure below the poverty line. (Y_p - Y_i) is the depth or severity of poverty of the individual. Thus, the poverty gap index in an economy can be measured as:

            

Squared Poverty Gap Index (SPG):

SPG measures not only the depth of absolute poverty (measurable condition of poor) but also the imperial, social, and political stability in a society.  Simply it measures income inequality among the poor below the poverty line. No civil society is satisfied due to people are still in absolute misery.

(Table 2)

(Source: Nepal Living Standards Survey IV, 2079/80)

Practical:

A society consists of four individuals with the following incomes: Rs. 200, Rs. 220, Rs. 300 and Rs. 320. The poverty line is 250. Find the PGI & SPG.

Solution:

Total population (N) = 4

No. of poor population (N) = 2

Incomes of poor people (Y_i) : Y₁ = 200 & Y₂ = 220

Poverty Line (Y_p) = 250