Just how many people has the government lifted out of poverty? The answer to that question is critical, but clouded by a controversy over how the all-important ‘poverty line’ has been fixed. According to a new study by a panel headed by the former chairman of the prime minister’s economic advisory council, there were 363 million people, or 29.5% of India’s 1.2 billion people, who lived in poverty in 2011-12. The Rangarajan panel considers people living on less than `32 a day in rural areas and `47 a day in urban areas as poor. In contrast, the official estimates, using a different methodology suggested by a panel headed by the late economist Suresh Tendulkar, fixed the poverty line at an income threshold of `27.2 a day in rural areas and `33.3 in cities.
What does it mean to be poor across the world? It means different things in different countries, depending on the definition of the poverty line. In most of Europe, a family with a net income of less than 60% of the ‘median net disposable income’ — a broad measure of the national average income net of taxes income — is counted as poor. This would imply that a family in Britain would be poor if its current net income is less than £250 (about `22,500) a week or about `11 lakh a year. A poverty line ‘relative’ to the national average also gives an idea about the state of inequality. A sharp jump in the income of the richest will set the poverty line higher by pulling up the national average income. In the United States, the poverty line represents the basic cost of food for a family multiplied by three. The threshold level is adjusted for inflation every year. A family is counted as poor if its pre-tax income is below this threshold. In 2011, the poverty threshold for a family of four stood at $22,811 (about `11 lakh then). There were 46 million such poor families, accounting for 15% of the US population.
Economists set a poverty line to fix a threshold income to get a headcount of poor people. Households earning below the threshold are considered poor. The question is: How does one define the poverty line in India, in which old yardsticks may not hold good, either in terms of the food that money can buy, or in terms of defining who the poor are. Do these statistics accurately measure what poverty is, and what is the next step in poverty reduction for middle-income countries like India? These conceptual questions aside, one aspect appears certain: The definition of poverty line needs to be kept constant. It should be adjusted only for inflation.