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The Wire
09-06-2025
- General
- The Wire
Why India Needs to Update Its Own Poverty Line
Menu हिंदी తెలుగు اردو Home Politics Economy World Security Law Science Society Culture Editor's Pick Opinion Support independent journalism. Donate Now Economy 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 Real journalism holds power accountable Since 2015, The Wire has done just that. But we can continue only with your support. Contribute now 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. The Wire is now on WhatsApp. Follow our channel for sharp analysis and opinions on the latest developments. Make a contribution to Independent Journalism Related News Reality Check: Beyond Statistics, is Poverty Actually Reducing in India? 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Mint
08-06-2025
- Business
- Mint
Mint Explainer: What the World Bank's new poverty line means for India
Last week, the World Bank announced a new poverty line to decide how many people worldwide live in 'extreme poverty". The new threshold is higher than the previous one even in inflation-adjusted terms. That means many more people globally will suddenly find themselves below that benchmark and now be counted as 'poor". However, for India, the estimate has been revised downwards. That's because it's not all about the poverty line itself – other factors are at play, too. Also, 5.3% of Indians are poor by one measure, and 23.9% by another. Let's unpack all this. First, what is the poverty line? The poverty line is a minimum level of spending needed to meet one's basic nutrition, clothing and shelter needs. The number of people who cannot afford even that are classified as poor. One can adopt several standards to set the poverty line, and countries are free to decide those for themselves. But doing so at a global level is complex. A simple exchange-rate adjustment of India's poverty line in rupees per month wouldn't make it comparable with an American spending in dollars or a Kenyan spending in shillings, given the vastly different pricing levels in those countries. Also read | Himanshu: India needs official poverty data for effective policymaking To allow international comparisons, researchers created an international poverty line in 1990 that was adjusted for 'purchasing power parity' (PPP) across economies. PPP is an economic concept that compares the cost of a fixed basket of goods and services in different countries to determine the relative value and purchasing power of their currencies. That gave the World Bank its first global standard for a poverty line – $1 a day (at 1985 PPP). But PPP factors don't stay the same, since inflation is different everywhere, so the World Bank's International Comparison Program (ICP) keeps updating the PPP factors. This necessitates updates to the international poverty line as well. That's what has happened now. Because of such updates, it's possible that without any remarkable change in standards of living, one can cross the global line or slip under it merely through a methodology update. So, what did the World Bank say? Last week, the World Bank applied the 2021 PPP updates (which the ICP released last year) to determine a new poverty line. It also took into account improved data collection methods by several poor countries, which led to new poverty lines for them. Earlier, anyone who spent less than $2.15 a day on basic needs (at 2017 PPPs) was said to be poor. Adjusted to inflation, it would have been around $2.60 a day in 2021, but the new benchmark (which isn't merely due to PPP changes but also because of improved consumption surveys) is $3 a day at 2021 PPPs. Also read: India must redraw its poverty line to reflect economic progress When the World Bank issued its last estimate in September 2024, it counted 9% of people in the world as poor in 2022 based on the $2.15-a-day threshold. Now it reckons the figure was 10.5% (again, in 2022) by the new yardstick. This means 125 million more people were poor in 2022 (the latest reference year for which data is known reliably) than what last year's estimate had said. But there are two caveats to this. One, this increase doesn't necessarily mean more people are now poor; it means more people will now be classified as poor. Two, this number would have been much higher had the World Bank not applied a new method to come up with India's data (which was an outlier, seeing a decline in poverty rate). How has India's data helped in the revision of the estimates? Multiple factors, not just the application of 2021 PPP factors, have come together to influence poverty rates within the space of a few months. A major one is that the World Bank has now taken into account India's first official household consumption expenditure survey (CES) in 11 years, which took place in 2022-23 (and has since also taken place in 2023-24). When the data was still awaited for long, the World Bank was forced to use alternative sources to issue the best possible estimate of 12.9% for 2021 based on the $2.15-a-day poverty line. But now, the estimate stands revised to 5.3%. The change is based on both the new poverty line and the new official data that's now available. If we applied the old benchmark ($2.15 a day), around 2.4% of Indians were poor in 2022, as per the World Bank's calculations on that year's CES. The CES data for the 2023-24 survey is also available, but that doesn't yet reflect in the World Bank data. Let's apply a like-to-like comparison to summarise this: at the $2.15-a-day poverty line, the poverty rate for 2022 has been revised from 12.9% to 2.4%, thanks to the new official data. Meanwhile, the poverty rate for 2022 has gone up from 2.4% to 5.3% thanks to the changed poverty line. How has India's poverty rate changed over time? Any comparison with old data is ill-advised. The two poverty lines retrospectively applied to the CES of 2011-12 puts the somewhat comparable figures at 16.2% ($2.15 a day) and 27.1% ($3 a day). That means in both cases, poverty has shrunk drastically; by the new threshold, an estimated net 269 million Indians exited poverty in these 11 years. But this comparison isn't that straightforward. The 2011-12 CES is hardly comparable with the new surveys held in 2022-23 and 2023-24. The new ones tend to record higher consumption by Indians due to fundamentally improved data collection practices, and also because they ask them to lay out their spending on 405 items instead of 347 earlier. Also read: Don't deceive the poor world with an expensive green illusion The new surveys also assign consumption values to subsidised goods and services obtained from state-run schemes. This, too, raises the value of consumption spending for households. In summary, the methodology now records Indians as spending more in general, so it's harder to fall below a particular poverty line. But while a direct comparison isn't advisable, it is evident that poverty rates may indeed have fallen by a lot in the past decade. By how much, it's difficult to say. What more should one know about this? One, this is not the only poverty line the World Bank uses globally. This is actually the median of the national poverty lines of only low-income countries. It is applied to all countries under the name 'extreme poverty", meaning that one who is 'poor" even by the standards of low-income countries can be said to be living in 'extreme poverty". There are two other poverty lines: one for lower-middle-income countries, which has been revised from $3.65 to $4.20 a day, and for middle-income countries, which has been revised from $6.85 to $8.30. India is a lower-middle income country, so the $4.20-a-day poverty line would be a more relevant one. By that benchmark, 23.9% Indians were poor in 2022, as compared to 28.1% estimated by the old poverty line. The retrospective figure for 2011-12 (not strictly comparable) is nearly 58%. Also read | Mint Primer: How to read SBI's latest poverty estimates Secondly, the World Bank report also said there were 'growing concerns" about the CES's inability to capture households at the top of the consumption pyramid, and also observed its own need to exclude certain data captured in the CES—both factors, it said, would underestimate inequality in India. That said, the new CES methodology is more robust than the earlier one, and could provide more frequent poverty estimates hereon. Comparisons with the past data are impossible, and should ideally not be used to quantify progress over time.
Business Recorder
06-06-2025
- Business
- Business Recorder
Pakistan's threshold: World Bank fixes new poverty lines at $4.20/person/ day
ISLAMABAD: The new poverty lines for Pakistan — a lower middle-income country, set at $4.20/person/day up from $3.65/person/day, affecting 44.7 percent of the population rose from 39.8 percent, says the World Bank in its updated international poverty lines by increasing the threshold. The extreme poverty line is now $3/person/day, impacting 16.5 per cent of the population, up from 4.9 per cent under the previous $2.15 threshold. The upper-middle-income poverty line is $8.30/person/day, covering 88.4per cent of the population. Adjusting for purchasing power parities (PPPs) and inflation, the real value of the international poverty lines increases by 28per cent, 5per cent and 11per cent for the lower income countries (LIC), lower-middle-income countries (LMIC) and upper-middle-income countries (UMIC) thresholds, respectively. Pakistan's poverty rate to stand at 42.4%: World Bank The updates to the international poverty lines (IPL) are based on 2021 PPP data from the International Comparison Program (ICP) and ensure that poverty estimates remain accurate and comparable across countries. Christina Wieser, senior economist, Poverty and Equity Global Practice, World Bank, along with Tobias Haque, lead country economist for World Bank Pakistan, while briefing media said that thebank is updating its global poverty lines to reflect changes in the cost of living and consumption habits of people around the world, based on newly available data. As price levels and the cost of basic needs across the world and within income groups evolve, global poverty lines are periodically updated to allow for global comparisons, Wieser added. The new poverty lines are $3 per person per day for LIC, $4.20 for LMIC, and $8.30 for UMIC. These lines are based on 2021 purchasing power parity rates, as well as updated national poverty lines. For Pakistan, 16.5 per cent of the population lived below the $3 international poverty rate in 2018-19 (latest available survey year); and 44.7 per cent below the more relevant lower-middle-income line of $4.20. The revision does not suggest that poverty in Pakistan has worsened as living standards of the population have not changed to what was previously reported. The change in international poverty rates merely reflects a higher threshold for being 'non-poor,' based on improved consumption measurement across low-income countries; changes to LMIC and UMIC lines, where data is of relatively high quality, may reflect an increase in the value of poverty lines as countries become richer. IPL should be used only for cross-country comparison and analysis; for evaluating poverty in a particular country (Pakistan), the national poverty line remains the appropriate standard. The new IPL only affects the level of poverty, trends in poverty remain unchanged. Pakistan is among the countries experiencing the largest changes in poverty when transitioning to the 2021 PPPs based on the Low-Income International Poverty Line. This significant shift in poverty rates under the LIC line, compared to the LMIC and Upper-Middle-Income Country (UMIC) lines, is due to a concentration of households with welfare levels between $PPP2.15 and $PPP3, which is near the International Poverty Line. The need for new international poverty lines arises from the evolving price levels and cost of basic needs across the world and within income groups. To maintain accurate global comparisons, the World Bank periodically updates these poverty lines. International poverty estimates are based on the headcount of people with consumption below the international poverty line, defined in PPPs. Christina Wieser said the update of poverty estimates from 2017 PPP to 2021 PPP, and the new lines, preserves the trends observed in Pakistan, but with higher levels, including in World Bank projected estimates from 2019-2025. The new lines reflect 3 key updates at the global level including New and improved Purchasing Power Parity (PPP) factors, Improved data quality and greater accuracy in welfare measures and Updated values of national poverty lines reflecting current definitions. Copyright Business Recorder, 2025
