Wednesday, October 05, 2016

India's poverty estimate would go down to 12.4% from 21.2% if new methodology is adopted: World Bank report

By Rajiv Shah
The World Bank wants India to urgently rework its methodology of estimating poverty, more "compatible" with international estimates, saying if it does so, it “would eventually lead to a substantial downward revision of the poverty numbers in India” – from 21.2 per cent to nearly half of it, about 12.4 per cent, as worked out for the period 2011-12.
It is not known if the Government of India will accept the new methodology. If it does, the BJP-led government can go around propagating how poverty in India has substantially gone down, just as it did while revising GDP methodology, showing a higher GDP growth than previously estimated.
However, there is a risk in estimating lower poverty rates: It would mean providing fewer doles to people under populist programmes, alienating lots of people getting advantage of subsidies because they are categorised as poor.
Taking strong exception to the way India has been estimating poverty, the World Bank says, in its new report, “Poverty and Shared Prosperity 2016: Taking on Inequality”, had to take the total poor population in India “based on estimates rather than actual numbers provided through a household survey”.
“Such estimates are subject to a great deal of uncertainty, which typically arises because of revisions of national accounts in each country”, the World Bank notes, adding, India’s estimates “reflect the government’s periodic revisions of the growth in private consumption expenditure and the population.”
Giving the example of two years, 2013 and 2012, the World Bank notes, “Notwithstanding the revisions, no methodological change underpins the 2013 poverty estimates for India with respect to 2012.”
Pointing out that the poverty estimates for India at the global poverty line are “historically based on the Uniform Reference Period consumption aggregate, which involves a 30-day recall among respondents in the recording of all items of consumption”, the World Bank notes, “For 2011-12, this implies a poverty rate of 21.2 per cent at the US$1.90 poverty line.”
“Since 2009”, the World Bank says, “However, the Multiple Mixed Reference Period has also been used in the collection of consumption data. The methodology is closer to best international practice. It relies on recall periods among respondents of 7, 30, and 365 days, depending on the items of consumption.”
Pointing out that this methodology relies on “recall periods among respondents of 7, 30, and 365 days, depending on the items of consumption”, the World Says, “If the consumption estimate derived from the latter methodology had been used to estimate India’s poverty rate, the result at the US$1.90 poverty line would have been a substantially lower 12.4 per cent in 2011-12.”
It underlines, “The application of the methodology is still being tested. Its adoption would eventually lead to a substantial downward revision of the poverty numbers in India.”
Based on the old methodology, India, the World Bank says in its report, is by far the country with “the largest number of people living under the international US$1.90-aday poverty line, 224 million, more than 2.5 times as many as the 86 million in Nigeria, which has the second-largest population of the poor worldwide.
Pointing towards the scale of poverty in India, the report notes, “Whereas the annual mean income among the bottom 40 in the United States is US$8,861 per person, the bottom 40 earn US$1,819 in Brazil and US$664 in India, about 13 times less than in the United States.”
The report says, “Only the top 10 in India earn sufficient average incomes to be part of the bottom 40 in the United States if that is where they had been located”, adding, “The increase in inequality in India has been more muted and began in the second half of the 2000s.”

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