With the World Bank set to revise the Purchasing Power Parity (PPP) index and redraw the global poverty line, the number of poor in India is set to fall from the 2004-05 estimate of over 400 million, to as low as 100 million, according to government sources.
The revised calculation of PPP, for which the World Bank has sought data from countries, including India, could indicate the number of poor has dipped by as much as 70% — at least till a new poverty line is drawn.
Purchasing power parity conversion factor is the number of units of a country’s currency required to buy the same amount of goods and services in the domestic market as a US dollar would buy in the US.
The World Bank has set the global poverty line at $1.25 per person per day, calculated on the basis of the 2005 PPP index.
In the case of India, the PPP value has remained unchanged at 0.3 since 2009. This means that it costs about Rs. 20 in India to buy what will cost $1 (Rs 60) in the US.
However, recent data suggests that India is a much larger economy with substantially higher purchasing power.
The C Rangarajan committee said last month that three out of 10 Indians are poor (about 363 million, in 2011-12). The previous calculation by the Planning Commission, based on the Suresh Tendulkar methodology, had pegged the number of poor at 270 million in the same period.
PPP is not seen as an accurate gauge of poverty. “From the fact that a nation’s PPP-adjusted GDP has risen we cannot conclude that its chronic poverty has fallen,” Kaushik Basu, chief economist, World Bank, said in his blog. “While PPPs can be taken readily to amend GDPs, the same is not true for poverty.”
Poverty has been consistently declining, with the levels dropping from 37.2% in 2004-05 to 29.8% in 2009-10.
The number of poor was last year estimated at 269.3 million, of which 216.5 million was rural. The Rangarajan pane last month revised this estimate to 363 million.
“We would do everything to improve the country’s growth and the living standards of our people and that is not to please any international or world body as their basis of assessment is often faulty…their studies have often been questioned,” a senior government official who did not wish to be identified told Hindustan Times.
The downside of the exercise is that it may not truly reflect ground realities. Global poverty figures of various countries have limited relevance, and are seen as only useful for allocating aid and funds from the developed world.
If the poverty numbers do come down significantly, it would be bring the world substantially closer to achieving the Millennium Development Goal of halving poverty from 1990 to 2015 by the 1993 PPP level of $1. On paper, that is.