The World Bank has this week released a report saying the proportion of people living in extreme poverty has fallen to single digits in 2015: 9.6 per cent, down from 12.8 per cent in 2012. This is a first since the Bank started compiling such data in 1990. The other main takeaway was the claim that India has been overestimating its poverty rate. Far from the 21.9 per cent (for 2011-12) calculated by the Suresh Tendulkar Committee, or the even higher 29.5 per cent pegged by the Rangarajan Committee, the World Bank’s estimate is just 12.4 per cent. But more than any real change in the condition of the poor, the differences in poverty rates for the same year only underlines the importance of the way in which data is collected.
It is important to understand that a poverty line is essentially a monetary value. The idea is to collect data on people’s consumption expenditure, and to ascertain how many people surveyed fall below that poverty line. In India, there were two main ways of collecting data: Uniform Reference Period (URP) and Mixed Reference Period (MRP). Up until 1993-94, the poverty line was based on URP data. This involved asking people about their consumption expenditure across a 30-day recall period. In other words, the information was based on the recall of consumption expenditure over the last month alone.
Since 1999-2000, however, data are being collected according to MRP. Under this method, data on five less-frequently used items are collected over a one-year period, while sticking to the 30-day recall for the rest of the items. The low-frequency items include expenditure on health, education, clothing, durables etc. Currently, all poverty line data are compiled using the MRP method. These include the most recent estimates by the Suresh Tendulkar and Rangarajan Committees.
The World Bank’s 12.4 per cent poverty rate estimate for 2011-12 does not mean that people have become richer overnight. Rather, the Bank has used a new method for collecting data, called the modified mixed reference period, or MMRP.
In this method, for some food items, instead of a 30-day recall, only a 7-day recall is collected. Also, for some low-frequency items, instead of a 30-day recall, a 1-year recall is collected. This is believed to provide a more accurate reflection of consumption expenditures.
When such data was collected, consumption expenditures for people in both urban and rural areas went up by 10 per cent to 12 per cent.
This happened essentially because people could better recall their food expenditure over a shorter, 7-day period than what they might have done over the longer 30-day period. The higher expenditures, combined with the high population density around the poverty line, essentially meant that the poverty rate for India (for 2011-12) came down sharply.
Interestingly, the MMRP method was first used in 2009-10, alongside MRP.