Measuring poverty

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October 12, 2015 12:18 AM

Is it true that the number of poor people in the world has dipped to less than 1 billion?

The World Bank and the world are pleasantly surprised by the extent of reported dip in the number of absolutely poor people globally. That surprise is, however, bankrolled by some fortuitous circumstances, including one from India. The number, for the first time, has dipped to less than 1 billion. There are 700 million poor, according to the World Bank report Ending Extreme Poverty and Sharing Prosperity: Progress and Policies, released ahead of its annual meeting in Lima, Peru.

The key element about these numbers is they are just projections and not actual data points. So, the number of absolutely poor could be way off the mark. The Bank has estimated data points for poverty across 134 countries till 2011-12, and based on those data points the number of absolute poor stood at 1,011 million. The drop by 300 million from there is an expectation that is yet to be realised.

Over the past few decades—in fact, since 1979—the Bank has been attempting to accurately measure the extent of world population who are the poorest, all the while using a common scale to do so. In the process, it has developed a fabulous body of research. The exercise of trying to figure out the bare minimum it costs for a person to survive a day without becoming worse off the next day stems from this effort. When it was first framed, the colloquial estimate was a dollar (US) a day. It was set in 1991. By 2005, as prices increased globally, the number got upgraded to $1.25 by International Comparison Programme (ICP), an arm of the Bank that sets purchasing power parity (PPP) indices among countries. It is quite similar to the repeated estimates made in India to figure out the number of poor below the poverty line.

The logic is simple. To make comparisons work globally, the Bank converts this amount (say $1.25 a day) on the basis of the agreed PPP to figure out how much a poor would be able to buy in, say, Sierra Leone, Rwanda, India or Indonesia.

Since global prices had inflated from 2005 onwards, the ICP had advised the Bank to reset the basket of goods, which were available at $1.25, to a new number. This number has been set at $1.88; after rounding off, at $1.90.

The subsequent task is to use this number against the income and consumption data of each country, and then check how many people are above or below the line. In other words, how many Indians, for instance, earned above $1.25 a day as on 2005, or $1.90 per day as on 2011, or have remained below it.

This exercise threw up an interesting dataset. The set showed that, at 2005 prices, there were 1,011 million people in the world below even this basic subsistence level. When the numbers were checked up for 2011, their numbers had shrunk by 24 million, to 987 million (not 700 million). It is a small drop. But for the first time the number of those poor has slid to less than 1 billion. It is a telling piece of statistic.

That is, as far as the numbers take the story.

But since then, the big question for the Bank has been whether the sub-billion slide is permanent or would the number of poor inflate.

The Bank has also been poring over a very interesting piece of data from India. Jettisoning a 30-year-old statistical construct, India’s National Sample Survey Organisation used a “modified mixed reference period”, shifting to a new scale to measure poverty. The result was dramatic for lowest income groups.

The Indian scale now asks respondents to recall a week’s food consumption data instead of that for a month. The new scale shows that the poorest form 12.4% of the Indian population eking out life below the $1.25 PPP index. The NSSO has argued that this measure is more accurate, but the Bank has its doubts. “This year’s estimate of 12.4% will set the baseline for future Indian and global poverty estimates, one consequence of which will be a break in the global series.”

However, the effect of the new measurement scale on global poverty measurement has been dramatic. Since India accounts for disproportionately more of the poorest in the world, the Bank finds that the total number of people climbing to a higher income/consumption has expanded virtuously. There are, of course, grounds for assuming so.

Since 1990, the global poverty rate has fallen by approximately 1 percentage point a year, mostly due to rapid poverty reduction in China and India. In fact, though India was home to the largest number of poor in 2012, “its poverty rate is one of the lowest among those countries with the largest number of poor.”

In other words, they are above the $1.90 watermark.

But does it still dip the global number by 300 million, including about a 100 million from India? The Bank is obviously aware that this is a massively rosy picture. This is the reason why it has been squeamish about accepting the entire drop. The changes are consequently shown as “tentative projections”—the calculations are kept aside for the moment. When next year’s dataset arrives, it would be the right time to check up on the numbers.

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