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How the World Bank found fewer poor in the world

Any drop in poverty is a great story so to that extent it is a cause for cheer. It is also an attractive story because the total has a way of raising hope—the number of those living on $1.90 a day has slipped to less than 1 billion.

Written by Subhomoy Bhattacharjee |
Updated: October 6, 2015 1:13:09 pm
world bank, world bank poverty, world bank poor, poverty line, new poverty line, world bank survey, world bank poverty survey, world bank news, poverty survey, latest news, news The number of Indians below the poverty line, as per the Bank estimate for 2011 was about 286 million.

The

The World Bank has just given us “the best story in the world today” to use its own words. The number of people across the world in absolute poverty has fallen below 1 billion to 702 million. In percentage terms Indians in absolute poverty or those who are on the brink of survival (at Rs 3,170 per month) are now 12.4 per cent of its population using a new measurement scale.

The bank says that the Indian attack on poverty has scored because it has been waged on several planes. So along with measures to raise income the supportive infrastructure the country is building helps a lot. These include rural electrification which has changed consumption and earnings possibilities along with increases in the labor supply of both men and women, plus promotion of girls’ schooling. Similarly` ‘connectedness through railroads in India helped reduce the exposure of agricultural prices and real income to rainfall shocks”, says the Bank’s report ‘Ending Extreme Poverty and Sharing Prosperity: Progress and Policies’ released ahead of its meeting at Lima in Peru.

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Any drop in poverty is a great story more so because the new numbers raise hope—the number of those living on $1.90 a day has slipped to less than 1 billion in more than several centuries.

In writing this story, however, the Bank has faced problems. It has raised its ticket size to measure poverty to $1.90 from the older $1.25 since the price of goods and services across the world has risen. Yet the lower poverty numbers mean that despite the higher level of minimum income necessary to escape absolute poverty, more people in 2011 in the world are better off. Or, at least they are not as wretchedly poor as they were in 2005 when the $1.25 threshold was set. How come?

The answer works on two fronts. Firstly, the value of US dollar is cheaper in 2011 compared with 2005 if one measures it against the Indian rupee or the Indonesian rupiah or the Nigerian naira. Obviously anyone tracking the currency value of these versus the dollar will say this is peculiar maths.

Not so when we realise that the Bank is measuring the value of dollar against the relative movement of inflation in these countries and by extension the rest of the world. This is the concept of purchasing power parity.

Cutting out the math what we get is as follows: the World Bank first measures living standards using data from the 15 poorest countries of the world. It estimates how much it would take for the poorest women in those countries to afford $1.25 of quantity of food etc., and compares what she could get in 2005 to the same in 2011. The operation obviously has to use the national consumer price index of those countries. The scaling up process brings the estimate to $1.90.

Independently, it has also measured the income and consumption patterns of 132 countries to match against this new Plimsoll line. It shows there are fewer number of people who are below the new line now.

If this wasn’t difficult enough, the Bank notes that India has complicated it more. In 2009-10 India’s National Sample Survey Organization introduced a new consumption series to estimate the number of poor based on a “modified mixed reference period”, which too is a new scale.

The NSSO has argued this is more accurate but the World Bank has doubts. “This year’s estimate of 12.4 percent will set the baseline for future India and global poverty estimates, one consequence of which will be a break in the global series”. Since India still accounts for the most poor in the world even now the changes in estimation patterns matter.

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