Fact check: Has extreme poverty in India really dropped below 1%, as a new IMF paper claims?

Three Indian economists, in a recent working paper published by the International Monetary Fund, claimed that extreme poverty in India was less than 1% in 2019 and remained at that level during the peak of the pandemic in 2020.

“Extreme poverty was as low as 0.8% in the pre-pandemic year 2019 and food transfers were instrumental in ensuring that it remained at that low level in the pandemic year 2020,” read the paper titled “Pandemic, Poverty and Inequality: Evidence from India”. However, other researches state otherwise.

The working paper has credited the implementation of Pradhan Mantri Garib Kalyan Anna Yojana for preventing the rise in extreme poverty. This was instantly lauded by select politicians and media personalities on Twitter:

The paper is authored by Surjit S Bhalla, International Monetary Fund Executive Director for India, Bangladesh, Sri Lanka and Bhutan, Arvind Virmani, former chief economic adviser to the Government of India and New York-based economist Karan Bhasin. But it is a working paper, which means it has not been peer reviewed and the International Monetary Fund has emphasised that views expressed in the paper “do not necessarily represent the views of the IMF, its executive board, or IMF management”.

Economist and Political Analyst Ajit Ranade, who is also the Vice-Chancellor of Gokhale Institute of Politics and Economics, raised several questions on the viability of this finding. “If poverty is so low, and inequality is declining, why then is the government persisting with the free food scheme?... Why is there a flurry of welfare spending on free cooking gas cylinders, to cash transfer to farmer households and now free electricity in states like Punjab? Why has India’s hunger index worsened in 2021? It ranks 101 out of 116 countries. Can poverty decline to nearly zero and yet hunger and malnutrition increase? Why does an advertisement for a mere hundred government ‘secure’ jobs attract millions of overqualified applicants?,” Ranade wrote in The Times of India.

India’s poverty line

In India, the official consumption-based poverty line is still the Tendulkar Line, which is close to the World Bank $1.9 a day line. The Tendulkar Expert Group chaired by economist Suresh Tendulkar in 2009 was formed to review the methodology for poverty estimation.

The committee finalised the per person per day consumption figure of Rs 32 a day for urban areas and Rs 26 a day for rural areas. The national poverty line for 2011-’12 was estimated at Rs 816 per capita per month for rural areas and Rs 1,000 per capita per month for urban areas.

However, in 2012, due to the widespread criticism of the Tendulkar Committee’s approach, the Rangarajan Committee was formed. This panel’s report, submitted in 2014, raised the daily per capita expenditure to Rs 47 per day for urban areas and Rs 32 for rural areas. They recommended a monthly per capita consumption expenditure of Rs 972 in rural areas and Rs 1,407 in urban areas as the all-India poverty line. However, the government did not adopt this report and has continued using the Tendulkar Line.

Then there is the multidimensional poverty index used by the NITI Aayog in a recent report. The 2021 NITI Aayog report highlights the quality of life indices such as standard of living, health and education instead of income. The multidimensional poverty index method, which is universally accepted and used by the United Nations, helped estimate that more than half of the population in Bihar fell below the poverty level or were considered as multidimensionally poor. Bihar is followed by Jharkhand (42.16%) and Uttar Pradesh (37.79%). On the other hand, Kerala had only 0.71% below the poverty level.

Poverty worldwide

Poverty has various manifestations and each country has its own standards of basic living. In 2015, the World Bank updated the nominal poverty line from $1.25 to $1.90 per day. This means that if a person lives on $1.90 or below a day, they are living in extreme poverty. This information is collected by calculating the basic needs of 15 poorest countries in the world and averaging them.

In an interview, Ana Revenga, Senior Director of Poverty and Equity Global Practice at World Bank, said, “What a person needs to survive in Central Asia for caloric intake, clothing, shelter, and heat is different from what is needed in a tropical location… The standards vary with development. Richer countries will set a higher standard for what counts as poverty.”

Further, she said that while several aspects of poverty, such as, access to clean water and health care can be monetised, aspects related to monetising the quality of these provisions is difficult to measure.

Under the current exchange rate, $1.9 is about Rs 144. While $1 exchanges to Rs 76 in India currently, a dollar in purchasing power parity terms is much higher than Rs 76 in India. “It can buy you more, because some things are cheaper in India. So, poverty level defined as $1.9 implies a purchasing power of over Rs 144 in India,” wrote Ranade in The Times Of India.

Economists stressed on the fact that it is better for India to use $3.2 as the poverty line. “For India, it is better to use the $3.2 poverty line. If we take that, poverty increased from 18.5% in 2019-’20 to 26.5% in 2020-’21 (for the modified mixed reference period method) without transfers. With transfers, the poverty rate increased from 14.8% in 2019-’20 to 18.1% in 2020-’21. Therefore, in the pandemic period poverty increased in spite of food transfers,” explained S Mahendra Dev, Director and Vice-Chancellor, Indira Gandhi Institute of Development Research.

Varying studies

FactChecker found two studies showing a major difference in extreme poverty estimates. In aworking paper published in September 2020, the Ministry of Rural Development claimed that India was on track to end extreme poverty by meeting its Sustainable Development Goal by 2030. According to this paper, the extreme poverty level for India was at 4% based on the $1.9 poverty line. However, the ministry has not provided the methodology used to arrive at this figure.

Another and a more recent study by the World Bank, in April 2022, pegged the poverty rate at 10%. “The poverty headcount rate in India is estimated to have declined by 12.3 percentage points since 2011. Our preferred estimates suggest that the poverty head-count rate is 10.2% in 2019, down from 22.5% in 2011,” read the study.

Methodology highlights gaps

One of the main reasons for the vast difference in poverty estimates is in the difference in methodology of each paper. There are no official poverty figures in India after 2011.

The household consumption survey figures available for India are from National Statistical Organisation’s Consumption Expenditure Survey in 2011-’12. Economists FactChecker spoke to stressed that the poverty rate shown in surveys boils down to the method of collecting data.

In India, there are three main ways of collecting poverty data: Uniform Reference Period and Mixed Reference Period and Modified Mixed Reference Period.

The Uniform Reference Period method involves asking people about their consumption expenditure across a 30-day recall period. Under Mixed Reference Period, people are asked about the five less-frequently used items over a one-year period, while sticking to the 30-day recall for the rest of the high-frequency items.

The latest method used by the International Monetary Fund paper is the Modified Mixed Reference Period method which involves collecting a seven-day recall instead of a 30-day recall of certain perishable items. The proportion of the population below the $1.9 a day line was 22% as per National Sample Survey Organisation’s uniform recall period consumption numbers.

“In the absence of the next round of the household survey, we need some other way of determining what has happened to poverty since 2011-’12,” said Amit Basole, Head, Centre for Sustainable Employment, Azim Premji University.

According to him, there are two main ways to find that: use a private source for household survey data or use the growth rate of Private Final Consumption Expenditure from the National Accounts Statistics to update the 2011-’12 National Sample Survey Organisation numbers. “The World Bank paper does the first by using data from the Centre for Monitoring Indian Economy, while Bhalla et al [International Monetary Fund paper] does the second,” said Basole.

Basole further pointed out that the International Monetary Fund paper is based on three assumptions:

1. The consumption as recorded in survey data can be updated using growth rates of Private Final Consumption Expenditure. “This is tricky because Private Final Consumption Expenditure includes many items that are not part of household expenditure,” he said.
2. The assumption that since 2011-’12 household consumption would have grown at the same rate as Private Final Consumption Expenditure. It is most likely not true owing to the fact that since 2011-’12 India has seen shocks like demonetisation and Goods & Services Tax, said Basole.
3. The impact of GDP growth is constant across sections — meaning that incomes of the poor grew at the same rate as the rich and the household distribution did not change. This has not been demonstrated in the paper, he said.

The International Monetary Fund report’s findings are based on extrapolations, said Dev of Indira Gandhi Institute of Development Research. “Bhalla et al use 2011-’12 data and extrapolated the private consumption data of National Accounts Statistics data up to 2020-’21,” said Dev.

“This may underestimate poverty as the growth of consumption in surveys is lower than national accounts,” added Dev. “Secondly, they also state domestic growth for extrapolating consumption data. This also has limitations.”

The International Monetary Fund study took into account the cash equivalent of Public Distribution System transfers and added those to household consumption. “While it is useful to know what happens to poverty after taking PDS support into account, we cannot focus only on that rate. We need to see the ex-Public Distribution System rate as well,” said Basole. “Overall, it is reasonable to say that extreme poverty lies somewhere around 5%-10% and that it is time we moved to a higher poverty line (like $3.2 a day),” concluded Basole.

FactChecker tried contacting Bhalla for clarification via email but had not received a response by the time of publishing this article.

This article first appeared on FactChecker.in, a publication of the data-driven and public-interest journalism non-profit IndiaSpend.