The World Bank has released its latest estimates of global poverty, and has declared that it is “the best story in the world today” that global poverty has continued to fall. The Bank has said that 902 million people were poor in 2012; and has further estimated that the number will fall to 702 million people, less than 10 per cent of the global population, this year. Certainly, this is unquestionably good news. As with any such news, however, the numbers behind it require further investigation. This is so particularly because, according to the Bank’s new standard and calculations, only 12.4 per cent of Indians live in absolute poverty now. However, for many reasons, this estimate should be viewed with caution; it may significantly understate the amount of actual poverty.
The World Bank has finished a process that recalculated the global poverty line, pegging the poverty line at $1.90 a day instead of the previous $1, which was later adjusted upwards at $1.25 a day. Another contribution to the changes in poverty estimates was the 2011 re-estimates of purchasing power differences across countries, which significantly altered relative price levels — particularly between developing and developed countries. Prices were notably lower in developing countries when judged by the 2011 PPP calculations, as opposed to the earlier, 2005 calculations. This, as several commentators have pointed out, flies in the face of conventional economic reasoning which suggests that higher relative growth in developing countries should raise their relative price level, not reduce it. In concrete terms, the 2011 PPP calculations suggested that one US dollar bought as much as did Rs 15.11, whereas the market-determined rupee exchange rate in 2011 was 46.67 to the dollar. In 2011, therefore, $1.90 a day meant Rs 28.70 per person, per day or Rs 4,305 per month for a five-member family. Note that this is lower than the report of the C Rangarajan committee in 2014, which recommended that the poverty line be fixed at Rs 32 per person per day in rural, and Rs 47 per person per day in urban, areas — also at 2011 prices.
One reason for the divergence is the committee headed by Mr Rangarajan and before that the committee headed by Suresh Tendulkar calculated poverty lines using methods estimating expenditure on food and non-food items that are at variance with the methods of the 15 other countries whose poverty lines went into calculating the $1.90 a day level. More to the point, however, is that India maintains different state-wise, and urban vs rural, poverty lines, which can better inform policy than the World Bank’s single number. The Bank does make the provocative argument that “poverty in India could be even lower” than its estimate of 12.4 per cent. The major argument they make is that the new “modified mixed reference period” in India’s household surveys, wherein people were asked to recall food purchases over the previous week and other purchases over the previous month, gives significantly higher estimates for consumption than the earlier-used “uniform reference period”, which asked people to recall food purchases over a month as well. As there is such “high population density around the poverty line” in India, the World Bank says, changing the recall period can vastly change the count of the poor.
So the question is: if the proportion of the absolute poor is so sensitive to such things as the PPP and the recall period in surveys, can it be a sensible input into public policy? India should not be carried away by such numbers because just looking around at people in the country will show the poverty level to be higher than what the new survey indicates. If anything, this is a reminder that the government should tread cautiously while using these poverty lines for targeting and evaluation of anti-poverty schemes.
