Fall in India’s poverty rate: World Bank

Sakshi Education

The World Bank has revised the global poverty line, previously pegged at $1.25 a day to $1.90 a day (approximately Rs. 130).

This has been arrived at based on an average of the national poverty lines of 15 poorest economies of the world.

The poverty lines were converted from local currency into U.S. dollars using the new 2011 Purchasing Power Parity (PPP) data.

In its latest report ‘Ending Extreme Poverty, Sharing Prosperity: Progress and Policies’, authors Marcio Cruz, James Foster, Bryce Quillin, and Phillip Schellekkens, note that world-wide poverty has shown a decline under these new estimates.

The latest headline estimate for 2012 based on the new data suggests that close to 900 million people (12.8 per cent of the global population) lived in extreme poverty.

Compared with 2011, this number represents continued poverty reduction, as the headcount estimate then, using 2011 PPP data, was 987 million people (14.2 percent of global population). Further, tentative projections for global poverty in 2015 suggest that the global headcount may have reached 700 million, leading to a poverty rate of 9.6 per cent.

With the Sustainable Development Goals adopted in September, seeking to end all forms of poverty world over, the World Bank Group has set itself the target of bringing down the number of people living in extreme poverty to less than 3 per cent of the world population by 2030.

The 2015 Multidimensional Poverty Index (MPI) counts 1.6 billion people as multi-dimensionally poor, with the largest global share in South Asia and the highest intensity in Sub-Saharan Africa.

Though home to the largest number of poor in 2012, India’s poverty rate is one of the lowest among those countries with the largest number of poor, a latest World Bank report notes.

Also in the case of India, with large numbers of people clustered close to the poverty line, poverty estimates are significantly different, depending on the recall period in the survey, the authors note.

Since 2015 is the target year for the Millennium Development Goals, the assessment of changes in poverty over time is best based on the Uniform Reference Period consumption method, which uses a 30-day recall period for calculating consumption expenditures, as per the report. This method, used to set the baseline poverty rates for India in 1990, shows India’s poverty rate for 2011/12 to be 21.2 per cent.

By comparison, the Modified Mixed Reference Period (MMRP), which contains a shorter, 7-day recall period for some food items, leads to higher estimates of consumption and, therefore, lower poverty estimates. More country-specific details will be available once the Global Monitoring Report, using the new estimates, is launched in Washington DC on October 7.

Important points

Only 12.4 per cent of India's population lived below the poverty line in 2011-12, it arrived at the figure using its new expenditure cut-off of $1.9 a person a day and the National Sample Survey Office (NSSO)'s new methodology of poverty estimation.
If the NSSO's previous methodology is used, the figure stands at 21.2 per cent.
The World Bank, which scaled up its expenditure cut-off from $1.25 a day, said India's poverty rate was one of the lowest among developing countries, even if one used the previous NSSO methodology.
The new cut-off is based on purchasing power parity (PPP) during 2011; the previous one was based on PPP for 2005.
On a list of 10 countries, India's poverty rate of 21.2 per cent was higher than only China's and Indonesia's. However, in terms of the absolute number of poor people, India topped the list for 2011-12.
The new methodology is based on a modified mixed reference period, or the measure of MPCE when household consumer expenditure on most food items is recorded for a reference period of the past seven days.
For household consumer expenditure on items of clothing and bedding, footwear, education, institutional medical care, and durable goods, a reference period of the past 365 days is used, while expenditure on all other items is recorded for a reference period of the past 30 days.
In the previous methodology, based on a uniform reference period, the MPCE was based on household consumer expenditure on each item for a reference period of the past 30 days.
The new method is considered accurate, as it converts the 30-day recall to a seven-day recall for food items and to one-year recall for low-frequency non-food consumption items. The World Bank said as a result, expenditure in both rural and urban areas was 10-12 per cent higher than previous estimates.
It added from now, revised estimates of consumption expenditure would be used to gauge poverty in India.
In 2011-12, the United Progressive Alliance was in power at the Centre. At that time, the estimation of poverty had stirred a huge controversy. The poverty rate of 21.9 per cent for 2011-12, using the Suresh Tendulkar methodology, and 29.5 per cent based on the C Rangarajan model were higher than the World Bank's current estimate.
In India, reduction in income-based poverty rates was greater in states with higher initial poverty values, the report said. However, in terms of multi-dimensional poverty, the trend appears to be divergent, with states with less poverty showing greater progress, the World Bank said.
Infrastructure has played a crucial role in boosting the earnings of the poor in India. Rural electrification has increased labour supply and promoted girl schooling by redistributing their time to tasks that encourage attendance, according to the report. Investment in rail transportation has helped reduce the impact of adverse weather on agricultural prices and, consequently, real income.
The report said at the global level, the number of people living in extreme poverty had likely fallen to 9.6 per cent of the entire population this year from 12.8 per cent in 2012, based on an income cut-off of $1.9 a day.
In absolute terms, the number of poor across the world fell from 902 million people in 2012 to 702 million, according to the report.
The global poverty target of three per cent by 2030 seems optimistic, as the swift growth through the past decade is unlikely to be repeated across countries. Further, poverty is likely to remain at 20.1 per cent in Sub-Saharan Africa, which accounts for half the global poor.
Even if incomes were to rise at the average growth through 1994-2013, global poverty would stand at 5.7 per cent in 2030, with poverty in Sub-Saharan Africa at 26.9 per cent.
Poor structural characteristics of impoverished nations, the need to incorporate natural resources in economic decision-making, and adverse climate change were significant challenges to eradicating poverty, the World Bank report said. It added poverty also extended to aspects such as lack of access to basic infrastructure, health, education and employment. Even if income-based poverty was eradicated, it was likely that multi-dimensional poverty would persist in the short run, it said.