Summary

Poverty is the denial of material needs, opportunities or choices most basic to human development. A person deprived of nutritious food, safe drinking water, educational opportunity, health care or employment choices is poor. This multi-dimensional nature of poverty needs to be captured by any poverty measurement methodology.

Poverty measurement is not just a technical or academic issue but a highly political one. Poverty counts and trends for the same region vary by choices made in the measurement methodology - definition of poverty, indicators used to measure poverty, choice of poverty line, and the choice of data. Poverty estimates and trends influence economic and social policies. Hence developing a clear, comprehensive and transparent measure of poverty which captures the various dimensions is essential.

Income is most widely used to determine who is poor. But it is an inadequate and flawed measure. No single indicator captures all the human deprivations and hence cant solely be relied on to count the poor. A composite measure based on indicators for the various deprivations like the Human Poverty Index (HPI) is needed to measure poverty.

Poverty is widespread in the world, with an estimated 1.4 billion people in poverty according to the World Bank. We will examine nature and various dimensions of poverty by taking example of India, a country with the highest number of poor. India has between 27% (Official estimates) to 86% (World Bank $2 a day poverty line) of the population in poverty. 

Poverty estimates vary based on the way poverty is defined and measured. In India for example, official estimates based on income show that 28% of its rural population live in poverty. However, child malnutrition levels reveal the number to be 44% and numbers based on the consumption of calories indicate it to be 70%. So which one is correct? How many Indians are poor? And what is poverty really? What is the right way to count the poor? Why does poverty measurement matter? Some of these fundamental questions will be addressed in this backgrounder. We do not address the larger questions of reasons of poverty and poverty alleviation strategies.  

 Nature of Poverty

Poverty is multi-dimensional

United Nations (UN) defines poverty as the denial of opportunities and choices most basic to human development1. This broad definition not only captures deprivation from material needs like nutritious food, water and shelter, it also includes the denial of other opportunities like education and health care. 

Poverty is multi-dimensional; hence it is important to use multiple indicators to capture the various deprivations  

Income-Based Poverty measurements are inadequate

The most popular way to measure poverty is through income. People earning less than a certain amount are deemed to be poor. This amount is meant to represent the minimum income required to fulfill the basic needs. It varies for different countries and is determined by the poverty-measuring organizations. This amount is called the poverty line.  

Income is a simple way to define poverty, but it is often inadequate because it fails to capture the various dimensions of poverty. For example, a woman living in a non-poor household may still be deprived in other ways. She may be illiterate or lack access to health care or be denied other basic opportunities due to her low social status. These deprivations are not captured by the income measure and are faced by several women, especially in South Asia.

World Bank Poverty estimates are flawed

The World Bank (WB) measures poverty using income as an indicator. It uses a uniform poverty line of $12 a day across all countries. Using surveys it determines the national currency amount in each country which can buy material goods and services equivalent to purchasing power of $1 in the United States. This number is then called the purchasing power parity (PPP). People who earn less than this amount are deemed poor. For India in 2005, the WB determined that Rs.15 was equivalent to $1 and based on that, 42% of the Indian population is poor.

According to these estimates, there are 1.4 billion poor people in the world and one-third—456 million— of these people live in India. Income poverty has declined from 52% to 26% in the World during 1981-2005. A large proportion of this decline is in China. India and Sub-Saharan Africa have seen an increase in the number of poor during this period.

Choosing a poverty line of $2 a day instead of $1 a day gives us completely different results in trend and extent of poverty. 86% of Indian population earn below $2 a day (Rs. 30). Also the number of people living below $2 a day in the world has gone up from 2.7 billion to 3.1 billion during 1981-20053.

In addition to the shortcomings of measuring poverty by income, the WB's method of counting poor has been criticized as being meaningless and unreliable4. The WB poverty line is arbitrary and is unrelated to the income needed to achieve basic material requirements.  For example an income of Rs.15/day in India (or $1 per day in US) is insufficient to get even two nutritious meals per day let alone other basic needs like health care, housing, education etc. Their methodology to calculate PPP estimates (national currency equivalent amount of $1) is flawed and untrustworthy. Part of this was demonstrated in their revision of poverty estimates.  In 2005 the WB was celebrating the decrease in poverty counts worldwide to below 1 billion. But later in their revisions of numbers for 2005 they realized the number of poor was actually 1.4 billion - an increase of 400 million overnight3. Also the trend of poverty decline over last 20 years in several countries was dramatically different then previously thought4. This also shows that its imprudent to rely on WB estimates for tracking poverty reduction targets in Millennium development Goals (MDG) or making economic or social policies based on them.

Best defined standard

UN’s Human Poverty Index (HPI) captures the multi-dimensional nature of poverty

HPI is a way to measure poverty based on the different kinds of deprivation people face1. There are three categories that capture the  different deprivations.

·         Survival— the likeliness of death at relatively early age (e.g. the % of people that would be expected to die before age 40)

·         Knowledge — being excluded from the world of reading and communication (e.g. % of people who are illiterate) and

·         Standard of Living- whether people have access to the goods and services they need (e.g.% of population without access to healthcare, % without safe water, % of children who are undernourished)

Compared to the income-based measure, the HPI captures a wider set of deprivations (it is multi-dimensional) and is closer to an ideal poverty measure.

The fact that the HPI captures the multi-dimensional nature of poverty and that HPI rankings are significantly different from income-poverty rankings shows that the income-based measure of poverty is incomplete and faulty.

The Indian case

Official Indian poverty line does not capture the cost of basic requirements.

The Indian government's official estimate of income poverty is 27.5% - 301 million people. Indian government uses a poverty line of Rs.12 /day in rural areas and Rs.18 /day in urban areas5. This poverty line has being criticized as being too low for achieving the basic needs for life. 

The original official poverty line for India was set based on calorie consumption standards in 1973. People whose food consumption fell below minimum calorie standards (2400 Kcal/day for rural population and 2100 Kcal/day for urban population) were deemed as poor. This poverty line was supposed to ensure that income for non-poor people was at least enough to cover nutrition requirements. But later India abandoned the calorie standards and used inflation to update its base poverty line. This created a disparity in counting the poor.

Calorie standards indicate 70%6 of rural population in poverty but official estimates of rural poverty are only 28%. At official poverty line people consume 600 calories6 less than the minimum standards. 

Official numbers also indicate a steady decline in poverty over the years. However, calorie standards indicate that things have been getting worse since 1977. In addition malnutrition among children and anemia rates in women have not shown any significant improvement in last ten years.

 This contradictory data indicates the need for revamping of the official poverty measure, so that it captures the cost of basic requirements and the various deprivations.  

 Poverty varies dramatically across States

 Poverty rates in India are strikingly different in different states. For example, official income poverty varies from below 10% in Jammu & Kashmir, Punjab and Himachal Pradesh to above 40% in Orissa, Bihar, Chhattisgarh and Jharkhand5. Punjab, Haryana and Bihar have the least proportion of rural population consuming below calorie standards, while Tamil Nadu, Gujarat and Karnataka have the highest proportion6. 

Human Development Index (HDI) is based on some of the same indicators on which HPI is constructed.  HDI ranking of selected states shows that Kerala, Punjab and Tamil Nadu have the highest level of human development whereas Bihar, Assam and Uttar Pradesh have the lowest level. More than 2/3rd women in Assam and Bihar are anemic, while only a third of women are anemic in Kerala and Punjab7. Bihar and Uttar Pradesh have illiteracy rates of above 40%, while Kerala and Himachal Pradesh have rates below 15%8. More than half of children in Bihar and Madhya Pradesh suffer from malnutrition, while less than a third do in Andhra Pradesh and Tamil Nadu7.

Even though Kerala, Tamil Nadu and Himachal Pradesh have lower per capita income they perform significantly better in almost all poverty measures than the richer states like Gujarat and Maharashtra.

Rural areas are more deprived than Urban.

Poverty is more prevalent in rural areas than urban areas. Proportion of child malnutrition is 21% higher in rural areas. Official poverty estimates are 3% higher.  Proportion of people without access to sanitation is twice that in urban areas.   

Women are more deprived

Women face more hardship then men in India. The proportion of women illiterate is almost twice as high as men. The proportion of women anemic and not earning any income is more than twice that of men1. 

Poverty is concentrated in Backward Castes 

Scheduled castes (SC) and scheduled tribes (ST) households face more poverty than the rest of the population. Proportion of poverty is more than twice in Scheduled Tribe households than non-scheduled households. SC and ST households constitute almost half of rural poor population, but are only about a fourth of the total households9. Illiteracy and under-five mortality are far higher in SC/ST families.

Conclusion

Poverty measurement matters

It is critical that we measure poverty correctly as a range of critical policies are decided based on these numbers. At the global level , poverty counts help in tracking the progress of large goals such as the Millennium Development Goal (MDG) which aims to reduce poverty in half by 2015. This global count also determines the flow of international aid, specifically how much and to which region it goes. Additionally, trends in poverty are used to justify economic and social policies.

In India, like in many countries, social schemes like food subsidies and insurance schemes are exclusively given to the poor (those who fall under the official definition of poor). However, incorrect classification (labeling a poor person as not-poor) can disqualify the individual from the schemes and rob them of their basic needs and opportunities.

Multi-dimensional measures should be developed and used.  

No single indicator captures the various dimensions of poverty. Hence there is a need for composite measures which capture deprivations across different categories. HPI is the only widely known multi-dimensional measure of poverty but is rarely used for policy making. The simplistic measure of $1 a day is popularly used by various governments and international agencies. However, it fails to capture various deprivations  and gives a false sense of progress. More efforts should be put in developing measures that can capture the different dimensions of poverty, and these measures should be used to make policies. 

Notes & References

1.        UNDP HDR Website.(http://hdr.undp.org/en/statistics/indices/hpi/)

2.        The actual WB poverty line today is $1.25. $1 was the poverty line set in 1980 and continues to be referred by $1 a day poverty line.

3.        World Bank Poverty Website.

4.        Thomas Pogge and Sanjay G. Reddy “Unknown: The Extent, Distribution and Trend of Global Income Poverty”, Economic and Political Weekly, India

5.        Planning Commission of India—Website

6.        Jaya Mehta, Nutritional Norms and Measurement of Poverty

7.        National Family Health Survey—2005-06   

8.        National Literacy Mission of India—Website     

9.        Ira N. Gang & Myeong-Su Yun & Kunal Sen, 2002. "Caste, Ethnicity and Poverty in Rural India," Departmental Working Papers 200225, Rutgers University, Department of Economics  

About Backgrounder Series:

This is first among a series of Backgrounders which are meant to provide clear and succinct information on important social issues like poverty, inequality, nutrition, gender discrimination etc. The Backgrounder series is aimed at policy makers, journalists, researchers and the broader public to provide a quick sense on the issues. The series is not designed for a technical audience. It will try to re-define and remove the obfuscation surrounding the issues and will be used to develop an inclusive understanding. The concepts are applicable globally but the data might focus on India.