Last month saw the release of two sets of poverty estimates. The World Bank released poverty estimates based on its recent calculation using updated purchasing power parity, or PPP, estimates. The second estimate released a day later by the Asian Development Bank, or ADB, used the same set of data but different poverty line and PPP deflators than the ones used by the World Bank.
Both studies used National Sample Survey Organisation, or NSSO, consumption expenditure surveys but arrived at different estimates of poverty for India. By the World Bank poverty line of $1.25 (Rs56.13) per day, the estimated number of poor in India in 2004-05 was 456 million, 41.6% of the population. Using the $1.35 per day Asian poverty line of ADB, the number of poor in India is 622 million, which is 54.8% of the population. The third estimate is our own official poverty estimate by the Planning Commission for 2004-05, which is 27.5% of the population, or 301 million.
Needless to say, these large differences in poverty estimates for the same country in the same year are a reflection of the poverty of statistics rather than the statistics of poverty. The poverty of official statistics is not only inherent in the way PPP estimates are calculated that yield different deflators, but also in the way international poverty lines are calculated.
The real difference in these numbers that vary from 27.5% to 54.8% lies in the way we characterize the poor. This essentially requires setting a poverty line which demarcates the poor from the non-poor. It is here that the three methods differ.
For the international poverty lines, matters are further complicated by the choice of PPP deflators used to convert national currencies to internationally agreed currencies such as the US dollar. Compared with the previous set of poverty estimates from the World Bank which were based on the $1 a day poverty line, the new estimates differ on two counts. The first is the incorporation of recently updated PPP deflators based on new price data from the international comparison programme that monitors prices of commodity bundles across countries. The second is the choice of poverty line, which is now anchored on the basis of 15 poorest countries in the world, most of which are in Africa.
The change in methodology as far as ADB poverty estimates are concerned is again two fold. The first is the choice of PPP deflators that are taken for commodity bundles weighted by consumption patterns of the class of people who are closer to poverty line, rather than the entire population. Secondly, the Asian poverty line is derived from national poverty lines of Asian countries.
The net change is that the Asian poverty line of $1.35 per day is higher than the World Bank poverty line of $1.25 per day. Moreover, because the PPP deflator used is suitably weighted for consumption of people around the poverty line, ADB estimates are almost 13% higher than the World Bank poverty estimates.
Both these international set of poverty lines suggest a much larger magnitude of poor people in the country than the official estimate of poverty suggested by the Planning Commission. But why do these poverty estimates show higher estimates of poor than the official estimates?
The PPP deflator part may not be the real culprit in this case. The real culprit in this case is our own poverty line which is pegged at a lower level than the poverty line of poorest 15 countries.
The discrepancies in the present set of poverty lines in the official poverty estimation methodology have been highlighted by a number of academic papers in the recent past. Apart from being too low, these also suffer from various other problems such as inter-state price differentials and rural-urban price differentials. Acknowledging these, the government has also set up a new expert group under the chairmanship of S.D. Tendulkar to suggest a suitable poverty line.
However, quarrelling on the actual estimate of poor in the country may be secondary to the important message coming from these poverty comparisons. This is particularly relevant for the two largest countries that are also the fastest growing, India and China.
China, which started at a higher poverty of 60% in 1990 compared with 51% for India in 1990, saw poverty decline to 16% in 2005 compared with 41.6% in 2005 for India. That is, in the last 15 years while China managed to reduce the number of poor by 475 million, the number of poor in India actually increased by 20 million. This is despite the fact that growth rate of Chinese economy is only marginally higher than the growth rate of Indian economy.
This is also the message from ADB poverty estimates. Despite the high growth rate of Indian economy in the recent past, India has the second highest poverty—after Nepal—among all Asian countries.
Clearly, growth alone may not be the best antidote for poverty reduction, at least not in the Indian context.
To read all of Himanshu’s earlier columns, go to www.livemint.com/farmtruths
Himanshu is assistant professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi. Farm Truths looks at issues in agriculture and runs on alternate Wednesdays. Respond to this column at firstname.lastname@example.org