Why India Needs to Update Its Own Poverty Line

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Why India Needs to Update Its Own Poverty Line
Dipa Sinha
4 minutes ago
It is important to remember that poverty ratios derived from consumption-expenditure-based poverty lines represent only one dimension of well-being.
Illustration: Pariplab Chakraborty
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India's poverty numbers are once again making headlines, ironically even though our official poverty lines have not been updated in over a decade.
The World Bank has revised the International Poverty Line (IPL) from $2.15/day (2017 purchasing power parity or PPP) to $3.00/day (2021 PPP). Based on this new line, the poverty ratio in India is estimated to be 5.25% compared to 27.12% in 2011-12. While it could be true that the poverty ratio has declined in the last decade, there are a number of questions related to the data and methodology which put a cloud over both the extent of decline as well as the level of poverty currently.
A longstanding criticism that these poverty lines of the World Bank are extremely low and do not reflect what most would accept as absolute poverty still holds. Based on the latest data from the International Comparison Program (ICP) based on which these new estimates have been released, one PPP$ is roughly equivalent to Rs 20. Therefore, this new poverty line of $3 a day reflecting extreme poverty is equivalent to only Rs 60 per day of consumption expenditure per person. On the basis of the higher IPL of $4.2 PPP (i.e. Rs 84) per day, 23.89% Indians are estimated to be poor. We don't need to be experts to imagine what living on less than Rs 84 a day means (this is to account for all expenses of a person including rent, travel, food, education, health and other consumption).
It is common practice for poverty lines to be revised at regular intervals to reflect the change in living standards and consumption patterns. The last time India's official poverty line was changed was in 2009 based on the Tendulkar committee recommendations. In 2015, the Rangarajan committee made recommendations updating the poverty lines but it is not clear what their official status is. In fact, India stopped estimating consumption-based poverty after 2011-12 and has been relying in recent times on these World Bank and IMF estimates.
India not in consideration
As mentioned in the official press release of the Union government, the new IPL reflects (a) revised national poverty lines in low income countries (b) improved measurement of consumption, particularly food and non-food items and (c) the integration of 2021 PPP estimates. In fact, this press note quotes the World Bank saying, 'Most of this upward revision is explained by revisions in the underlying national poverty lines rather than a change in prices'.
But the issue is that India is not one of the countries that has made this upward revision to its poverty line! And therefore, the IPL does not include the Indian national poverty line in its consideration at all.
While the verdict is out on whether the new methodology of collecting data that was adopted in Household Consumption Expenditure Surveys (HCES) of 2022 and 2023 captures consumption better, what is not in doubt is that this data are now not comparable with the previous rounds of consumption expenditure. While the World Bank has considered the change in the recall period and adjusted for that while comparing with 2011-12 (from URP to MMRP), the HCES changed not just the recall period but the entire way in which data were collected – with multiple visits to each household and changes in the questionnaire. While there have been some validation exercises to understand what the impact of these changes are in comparing trends, no official national estimates have been released so far on what the poverty rates are based on these new surveys. PPP estimates of the ICP are also known to have their methodological issues which are too complex to discuss here.
Limitations
What is important, however, is to understand the limitations of these global poverty estimates and to be cautious not to assign them more weight than they merit. The World Bank factsheet on the new poverty estimates include FAQs which also clearly explain the limited use of these international poverty ratios by stating: 'A country's national poverty line continues to be far more appropriate for underpinning policy dialogue or targeting programs to reach the poorest within that specific context.'
Further, it also states that, 'when analyzing trends for a single country, the national poverty line is the appropriate standard to use. It captures the definition of poverty that is most relevant for this context, as well as how it should be updated over time to reflect changes in survey methodologies and evolving needs.'
What is required therefore in India is an urgent exercise at updating our own poverty line – this was something that was under the remit of the erstwhile Planning Commission. The NITI Aayog must now take this on. The expert committee must develop a methodology that robustly measures poverty, grounded in a normative understanding of the basic minimum standards we, as a country, believe every citizen should have access to. In the absence of such an exercise, the old poverty ratios are still being used for making crucial allocations to states for programmes such as the National Social Assistance Programme (NSAP) through which social security pensions for the elderly, single women and disabled are disbursed.
Further, it is important to remember that poverty ratios derived from consumption-expenditure-based poverty lines represent only one dimension of well-being. To gain a comprehensive understanding of the realities of people's lives, a broader set of indicators must be considered. These include employment status, real wage trends, health and education outcomes, food security and nutritional status, as well as income and wealth inequality, among others. Taken together, these dimensions provide a more holistic picture of well-being – and on many of these fronts, both national and international estimates indicate that India still has a significant distance to cover.
Dipa Sinha is a development economist.
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