Measuring Poverty

With the advent of development economics in the post World War II era there also came the rush to measure poverty. Since removal of income poverty was the stated goal of all developmental policies it was necessary to measure poverty and show whether poverty had actually decreased or not. So there began a great game regarding the definition of what exactly is income poverty and how many people lived below this poverty line. In India in 1979 an expert group in the Planning Commission defined the poverty line as the income which would allow a rural person to consume a minimum of 2400 calories per day and an urban person 2100 calories per day. While the requirement of food was thus normatively decided, there were no such ideal norms for the accompanying requirement for other items of necessary consumption like clothing, housing, education and the like. Thus this poverty line was itself an underestimate of the actual poverty line. The income was measured in the form of the consumption expenditure required to purchase food and other associated consumables and durables like clothing and housing that would allow the partaking of these many calories. The consumption expenditure data for the 28th round of such measurement through a large sample survey conducted quinquennially by the National Sample Survey Organisation in 1973-74 were used to calculate the poverty line and it turned out to be Rs 49.09 monthly expenditure per capita in rural areas and Rs 56.64 in urban areas. The incidence of poverty at that time was 56.4% in rural areas and 49% in urban areas. However, since then instead of doing this exercise again at the time of the following quinquennial surveys what the Indian department of statistics has done is to inflate the original expenditure arrived at in 1974 with the consumer price inflation index and treat that as the new poverty line and then estimate the number of households that were below that line. Now in reality the actual consumer expenditure required to purchase the calorie intake was much larger because the consumer price index too was doctored and kept below the actual level so as to keep down the dearness allowance to be paid to workers on its basis. So even though the official headcount of those living below the poverty line in India at present is less than 30% in reality it is close to 90% if the estimate is done on the basis of the latest consumer expenditure data from the NSSO 61st round survey of 2004-05. The Indian government of course denies this. The economist Utsa Patnaik has written a seminal paper on this that is a must read for all who want to get to the bottom of the great poverty line estimation swindle.
Similarly the World Bank too had played this spurious poverty game with gusto. It decided on 1$ a day per person as the extreme poverty line and 2$ a day as the poverty line in the 1980s when it first began to act in a big way in the first post oil price hike era to try and bring down poverty. However, unlike the Indian government the World Bank has suddenly had some kind of a change of heart and now it has come up with new estimates which show that 456 million people in India or 42% of the population live below the extreme poverty line while 828 million or 75.6% of the total population lives below the poverty line. This estimate is on the basis of converting the dollar using the purchasing power parity method rather than the official exchange rate method. Since the equivalent of a dollar in India fetches much more in terms of goods and services than it does in the USA that is why the poverty line expressed in dollars actually has a higher rupee value than that obtained by the official exchange rate.
One is left wondering as to why the World Bank has suddenly become so frank and forthright when it has consistently said earlier that world poverty has been declining due to its efforts and India especially has been reducing its poverty level by an annual 2% over the last two decades or so.