Suggesting that India, home to the largest number of poor in 2012, may have been overestimating the number of its poor, the World Bank has detailed how a shift in the way consumption expenditure is recorded alters the country’s poverty rate from 21.2 per cent to 12.4 per cent for 2011-12.
In its report, Ending Extreme Poverty and Sharing Prosperity: Progress and Policies, the World Bank, highlighting ‘Why poverty in India could be even lower’, says the poverty rate can change if data recording is based on the modified mixed reference period (MMRP) instead of the uniform reference period (URP).
Under the URP, used in the National Sample Surveys since the 1950s, data is collected on the “30-day recall for consumption of both food and nonfood items to measure expenditures”. But under the MMRP, which was first introduced in NSS (alongside URP) in 2009-10, the 30-day recall was modified to a 7-day recall for some food items and to a 1-year recall for low-frequency nonfood consumption items.
The report states that the MMRP was recommended as a more accurate reflection of consumption expenditures. “As a result of the shorter recall period for food items, MMRP-based consumption expenditures in both rural and urban areas are 10-12 per cent 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 per cent for 2011/12.”
The reduced poverty numbers for India, based on the shift in methodology, have been used for the global index which, for the first time since its inception in 1990, has found that the proportion of people living below the poverty line globally has fallen to 9.6 per cent. In 2012, this proportion was 12.8 per cent.
The World Bank’s estimates are also based on a new global poverty line. The $1.25-a-day benchmark — popularly called the dollar-a-day poverty line — that was being used since 2005, has been updated to $1.90 a day to reflect the 2011-based purchasing power parity (PPP) prices. As a result, as against an estimated 900 million people in 2012, who lived on less than $1.90 a day, 2015 will have only 700 million.
But experts and academicians tracking poverty are not entirely convinced with the wisdom of shifting to MMRP. “The first thing to understand is that the poor remains the same, irrespective of how you measure their consumption data. Moreover, MMRP has not been accepted by the government as the norm for measuring consumption expenditure for poverty line,” Himanshu, professor of economics in JNU, said.
But it is not just a matter of convention alone. There are technical hurdles if India also shifts to a MMRP model. “The MMRP data was first taken in 2009-10 and it had to be discarded because it was a drought year. So as of now, we have just 2011-12 data. Shifting to it would also mean that you have no historical data to go to,” he said.
However, a World Bank spokesperson justified the choice of MMRP: “Research in data collection methods has established that factors such as the length of the recall period can have a considerable effect on the resulting measures of estimated consumption. Entirely consistent with the evidence, the MMRP which contains a shorter, 7-day recall period for some food items, leads to higher estimates of consumption and, therefore, lower poverty estimates. In moving to MMRP, data collection practice in India is more closely aligned with the more common practice across countries of a two-week or less recall period for food.”
The Bank’s stated goal is to end extreme poverty and is aligned with the sustainable development goals (SDGs) announced by the UN last week. This implies “a reduction in the global headcount ratio of extreme poverty (the population share of those whose income is below the international poverty line) to 3 per cent by 2030”.
However, the report highlights that extreme poverty is getting more concentrated in Sub-Saharan Africa and South Asia. Sub-Saharan Africa, despite a fall in poverty rates from 56 per cent to 42.6 per cent between 1990 and 2012, still accounts for 43 per cent of the global poor. South Asia accounts for one-third of the global poor.