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UPA miscalculation? World Bank says, 2011-12 Indian poverty was 12.4%, not 20.1%, blames methodology

By Our Representative
A World Bank policy paper, approved by its chief economist Kaushik Basu, has said that India has been over-estimating its poverty levels by adopting an old methodology. The paper says that a major reason why India miscalculated is because it did not include long-term nonfood consumption items in consumer expenditure in its calculation methodology.
Titled “Ending Extreme Poverty and Sharing Prosperity: Progress and Policies”, in a sub-section, “Why poverty in India could be even lower”, the paper suggests, a major “non-food” factor which may have contributed in reducing poverty in India is infrastructure development in remote areas, particularly rural electrification.
As a result, says the paper, which has been authored by Marcio Cruz, James Foster, Bryce Quillin and Philip Schellekens, the actual poverty in India should not be 21.1 per cent, as earlier calculated, but actually 12.4 per cent in 2011-12.
As the reference year for poverty is 2011-12, observers say, it is “safe to assume” that the paper refers to the success achieved by the Rajiv Gandhi Rural Electrification Mission, floated by the previous UPA government, in order to provide subsidized power to the poorer sections of the population across India.
Pointing out that targeted infrastructure development has helped reduce poverty, the paper says, “Rural electrification in India has caused changes in consumption and earnings, with increases in the labor supply of both men and women, and promoted girls’ schooling by reallocating their time to tasks more conducive to school attendance.”
Apart from rural electrification, the paper says, better railroads has helped, too: “Investment in integration and connectedness through railroads in India helped reduce the exposure of agricultural prices and real income to rainfall shocks, and helped diminish the famine and mortality risks associated with recurrent weather shocks.” 
Pointing towards what was wrong in the past methodology in poverty calculation, the paper says, “Poverty measures for India are based on the household expenditure surveys done as part of the National Sample Surveys (NSS). Since NSS began in the 1950s, it has used 30-day recall for consumption of both food and nonfood items to measure expenditures.”
“These so-called uniform reference period (URP) consumption aggregates collected in every consumption survey (except 1999/2000) provide the longest consistent series for measuring poverty in India”, the paper says, adding, even the World Bank used this methodology earlier. Under the UR-based consumption, India’s poverty would be 21.2 percent.
However, the NSS “introduced a new consumption series based on a modified mixed reference period (MMRP) in the 2009/10 survey. The MMRP series (which modified the 30-day recall to a 7-day recall for some food items and to a 1-year recall for low-frequency nonfood consumption items) was recommended as a more accurate reflection of consumption expenditures”, the paper says.
“As a result of the shorter recall period for food items, MMRP-based consumption expenditures in both rural and urban areas are 10–12 percent larger than URP-based aggregates. These higher expenditures, combined with a high population density around the poverty line, translates to a significantly lower poverty rate of 12.4 percent for 2011/12”, the paper underlines.

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