Remember Shamik and Godhuli of August’s ‘Crude Shocks’ issue? They have again caught hold of their Economics Money Shankar Sir. This time they want to solve their confusion about poverty lines…
Godhuli: Sir, is it true that India is becoming rich? I recently read in newspapers that poverty in India is declining. We have reduced the number of people living below US$1 a day by 9.6 million people between 2002 and 2005.
Money Shankar: You have heard right, Godhuli. The World Bank has done this study.
Shamik: But sir, India’s poverty line is not US$1 a day. How can our poverty be judged based on this threshold?
Money Shankar: To answer this question, we need to understand the basics of poverty line. But first, do you know what poverty means?
Shamik: Yes, of course. Poverty is a condition when a person does not have the basic necessities of life like enough food, clothing, shelter, safe drinking water, and so on. It is living below the poverty line.
Money Shankar: Very good, Shamik. Now let’s find out something more about poverty lines…
What is poverty line?
Poverty line, or poverty threshold, is the minimum level of income that is necessary to achieve a reasonable standard of living in a country. It is usually determined by finding the total cost of all the essential resources that an average human adult consumes in one year. In other words, it is the minimum expenditure needed to maintain a tolerable life.
Now, different countries have different needs. So, the ‘necessities’ and the idea of a ‘reasonable’ life are also different. Thus, there is a huge gap between the poverty lines of developed and developing nations. But, to estimate the reach of poverty worldwide, a particular threshold has to be used. The most widely used are the ones formulated by the World Bank, an international institution that provides financial and technical assistance for development programmes in developing countries.
The World Bank has set the lines at about US$1 per day for developing countries and US$2 per day for developed ones (1993 PPP). The US$1 per day threshold applicable to us is based on the average of the poorest countries.
Now, the line has been upgraded to US$1.25 a day for developing nations. And based on this, 1.4 billion people were ‘poor’ in 2005 worldwide. This was in 2005… Imagine the change in the numbers owing the current price rises.
In India, poverty line is based on how much money is required for a person to get the basic daily food (the number of calories consumed), his/her income and the kind of shelter. Our poverty line (2004–05) is Rs 356.30 for rural areas and Rs 538.60 for urban areas. In terms of Purchasing Power Parity (PPP), it comes to about US$1.02 per day.
However, most people feel that this threshold is too low, and continues to be based on a consumption basket that is too lean. So, the government has recently decided include other aspects like education, health, infrastructure, clean environment and benefits for women and children. This new index will be used in the next round of the National Sample Survey that gauges poverty.
Godhuli: But sir, if the poverty line rises, more people will fall below the line. Won’t that be bad?
Money Shankar: Not at all, Godhuli. The new index will reflect the true state of the country and help the government to formulate “multi-dimensional approach” to check deprivation.
Shamik: This means, our country probably has more poor people… We must do something!
Money Shankar: We are doing. The entire world is. Poverty reduction is our ‘Millennium Development Goals’.
Millennium Development Goals
Millennium Development Goals (MDGs) is a set of eight UN devised targets to halve world poverty between 1990 and 2015. The goals also help development experts measure how much progress has been made in reducing poverty over the years.
As of July 2007, the world is halfway to the target date of 2015. Today, there are 135 million fewer people living in extreme poverty than in 1999. By 2015 another 500 million people will have climbed out of the worst poverty.
India, too, is among the countries that have pledged to eradicate poverty. “Poverty alleviation has been one of the guiding principles of the planning process in India”, says the MDG India Country Report 2007. How far has it succeeded?
Both the dollar-a-day and US$1.25 measures show that poverty has steadily decreased since the 1980s. The country’s rapid economic growth and schemes like the National Rural Employment Guarantee Act has played a major role in this.
According to World Bank, “To achieve a higher rate of poverty reduction, India will need to address the inequalities in opportunities that impede poor people from participating in the growth process.” And this is what we have to do…
Money Shankar: So, are there any other doubts?
Godhuli: My confusion is gone. But, Shamik still seems bothered. What happened?
Shamik: Hmm… eradicating inequality in the society seems like the answer to all the problems of India, may it be poverty,
food security or price rise. We have to strike a balance. Any suggestions for this?