India's changed poverty estimates "temper confidence", would reclassify 50 million from poor to not poor

India's poverty estimates using separate methods

By Rajiv Shah
While the Indian authorities are basking in happiness over the World Bank, in a recent report, showing that India has jumped 23 places to the 77th position in ‘ease of doing business’, another Bank report, “Poverty and Shared Prosperity 2018: Piecing Together the Poverty Puzzle”, released last month, has found “important measurement issues” that “temper confidence” in India’s poverty estimates.
Pointing towards these measurement issues, the report states, “The last round of poverty data available was collected in 2011–12”, following which “an additional round of the National Sample Survey (NSS), collected in 2014–15”, having “socioeconomic and demographic information.”
While “both provide data on household expenditures on services and durables”, the report regrets, the 2014–15 NSS contains “three additional schedules with consumption data that were designed to test the potential for changing the questionnaire design”, but these data “are not in the public domain and were not available for analysis.”
“Lack of recent data available for analysis results in poverty estimates that are almost certainly much less precise than many other estimates in this report”, the report opines, adding, a second measurement issue with regard to India’s poverty estimation relates to “different ways to ask survey respondents about their consumption habits.”

Suggesting that this has created methodological problems for estimating poverty, the World Bank says, “With the next NSS data that will be made publicly available, it will no longer be possible to estimate consumption using the same questions and the extreme poverty measure will be estimated using a new questionnaire design.”

World Bank poverty rates across the world

Pointing out that “whenever the next round of NSS data is released (using the new questionnaire), backcasted estimates of poverty in 2015 will most likely show significantly fewer people living in extreme poverty”, the report underlines, it believes, that by “switching from the old to the new questionnaire” would result in “a significantly higher level of total consumption that reclassifies more than 50 million people from poor to not poor.”
To overcome the difficulties arisen out of India’s official poverty estimates, and “given India’s importance for the global poverty rate”, the World Bank says, for the sake of analysis, it decided to carry out an extrapolation method for “cross-validated.”
Thus, with household final consumption expenditure (HFCE) growth rate of 21 percent in India from 2011–12 to 2015, the welfare aggregate for all households in the 2011–12 survey was given a growth rate of 21 percent, and poverty in 2015 was thus estimated using this adjusted welfare vector. 

Proportion of poor according to region

Suggesting that changing methodology in estimating poverty is not a new problem with India, the report says, ”Until 1993–94, the consumption data in India were collected using the Uniform Reference Period (URP) method under which questions on household expenditure data for all items were asked for the previous 30-day period.”
Then, it says, “After a series of experiments in the ‘thin’ survey rounds from 1994–95 to 1998, the Mixed Reference Period (MRP) method was introduced in the 1999–2000 survey round in which expenditure on food, pan, and tobacco was collected using 7-day and 30-day recall periods, and the expenditure data for five nonfood items – clothing, footwear, durable goods, education expenses, and institutional medical expenses – were collected using a 365-day recall period.”
It adds, “With the 2011–12 round of the NSS, the Modified Mixed Reference Period (MMRP) was introduced where the recall period was set at 7 days for perishable items, 365 days for the five low frequency items, and 30 days for the remaining items.”
The result was that, “the official 2004–05 poverty rate for India with the URP-based consumption data was 27.5 percent”, but the “corresponding figure for the MRP-based consumption data was 21.8 percent.” Then, the poverty estimates and forecasts, based on MMRP “similarly indicate a significant decline in the number of poor people.”