How poor is India? Outdated poverty line creates data dilemma

Poverty line

India must revise its outdated poverty line criteria, says Bibek Debroy, chairman of the Economic Advisory Council to the Prime Minister. Debroy says the multidimensional poverty index should not be considered a poverty line. Currently, India relies on the poverty line established by the decade-old Tendulkar Committee. Although the Rangarajan Committee proposed different criteria, they were never officially adopted. The Tendulkar Committee’s 2009 recommendations pegged India’s poverty line at an expenditure level of Rs 33 a day in urban areas and Rs 27 a day in rural areas.

India’s current poverty line criteria are not only outdated but also inadequate to reflect the true cost of living. The Tendulkar Committee’s poverty line, set over a decade ago, fails to account for inflation and changes in consumption patterns. Revising the poverty line is essential to ensure that policy measures are aligned with the present-day realities of poverty.

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Why new poverty line is needed?

Among Debroy’s suggestions is the formation of a new poverty line, which can be applied to the Household Consumption Expenditure Survey (HCES) data. This data is essential not only for measuring poverty and inequality but also for providing crucial information to design and implement various government programs effectively. Debroy has also questioned whether a decline in inequality, as suggested by the latest household consumption expenditure survey, is beneficial. He termed the debate over the gap between the survey’s findings and spending measured in the national income accounts as sterile.

The lack of recent NSSO surveys on consumption expenditure poses a significant challenge. Without updated data, policymakers cannot accurately assess the current state of poverty, making it difficult to implement effective interventions. There is an urgent need for regular and comprehensive surveys to inform evidence-based policymaking. 

Measuring poverty

Poverty is conventionally defined as the percentage of the population below a poverty line, also called the head-count ratio. India faces a challenge in measuring poverty, as there have not been any NSSO (National Sample Survey Office) surveys on consumption expenditure since 2011-12. Consequently, there are no head-count ratios available after 2011-12.

The debate over the gap between survey findings and national income accounts points to deeper issues in data collection and interpretation. Discrepancies arise from differences in methodologies and definitions used in various surveys. Addressing these methodological inconsistencies is crucial for obtaining a clearer picture of poverty and inequality in India.

In recent years, development economists have pushed for viewing poverty as multidimensional. While India previously used physical quality of life indicators and the Human Development Index (HDI), the MDPI (Multidimensional Poverty Index) is currently favoured. The premise is that poverty is experienced in multiple ways, such as lack of access to education, healthcare, and nutritional food.

However, Bibek Debroy believes that the Multidimensional Poverty Index should not be directly compared with traditional poverty measurements like the Tendulkar line. While critical for understanding development, factors like health and education in the MDPI are more like causes or explanations of poverty, not poverty itself.

Adopting a multidimensional approach to poverty measurement can help identify the underlying causes of poverty more effectively. By focusing on health, education, and living standards, the MDPI provides a more holistic view of deprivation. This approach can guide targeted interventions that address the root causes of poverty rather than just its symptoms.

Nevertheless, the MDPI’s living standards indicators, similar to the government’s basic necessities, provide valuable insights. Ensuring access to these necessities aligns with the government’s goal of inclusion and can contribute to reducing poverty.

Since official surveys track consumption spending, inequality based on spending will naturally be lower compared with what income inequality might suggest. There is an international poverty line based on purchasing power, which adjusts for different countries’ costs of living. As economies grow, this poverty line should also rise to reflect a higher standard of living. The definition of “basic necessities” must evolve alongside economic development. 

How poor is India?

According to a recent UNDP report, 415 million people moved out of poverty between 2005-06 and 2019-21, with the incidence of poverty declining from 55.1% to 16.4%. Analysts estimate that around 15% of India’s population lives in poverty. NITI Aayog’s 2023 report on MDPI notes that the states of Bihar, Madhya Pradesh, Odisha, and Rajasthan witnessed the fastest reductions in poverty rates between 2015-16 and 2019-21.

Bihar achieved the most significant decline, with poverty dropping from 37.7% to 33.8%. Madhya Pradesh followed closely, reducing poverty from 37.7% to 20.6%. Odisha and Rajasthan also saw substantial improvements, reaching poverty rates of 15.7% and 15.3%, respectively, in 2019-21. While Uttar Pradesh has shown progress, it still has a higher poverty rate (22.9%) compared to these states. However, these figures are based on surveys like NFHS-5, which may have limitations.

It is important to note that poverty alleviation strategies must be adaptable to regional variations within India. States like Bihar and Madhya Pradesh have different socio-economic dynamics compared to states like Kerala and Tamil Nadu. Tailoring poverty reduction programs to local contexts can enhance their effectiveness and sustainability.

The criteria for defining poverty must be questioned. The decline in poverty seen in Uttar Pradesh is not simply due to a rise in income or consumption; instead, UP has made significant strides according to the Multidimensional Poverty Index (MDPI), which focuses on basic needs. This success is attributed to improved delivery of government schemes like Awas Yojana, Jal Jeevan Mission, and Swachh Bharat. These initiatives, implemented at the state level, have directly addressed basic necessities, leading to a greater impact on rural poverty compared to urban areas.

In a 2022 opinion article for Brookings, writers Surjit S. Bhalla, Karan Bhasin, and Arvind Virmani argued that the time has come for India to raise its poverty line from the existing extreme poverty line of $1.90 per person per day to the lower-middle-income (LMI) poverty line of $3.20. This would be a 68% higher mark than the present definition. The underlying argument is that as countries get richer, they shift from the concept of absolute poverty to relative poverty, and India should follow suit.