It has been reported on the basis of a Brookings Institution’s brief to the government that there has been a large decrease in poverty in India, according to World Bank studies. These are supposed to be in contrast to Indian studies, which do not depict such a large decline in poverty.

This is an interesting finding, but needs to be deliberated upon for its importance for policy-making. In my travels I still find poverty even around highways. As a professional economist, I think this issue is important in terms of growth and redistribution strategies. Somewhat unfortunately, the Brooking Institution’s findings have been placed in a peculiar context and will become the material for pre-election propaganda by both the critics and supporters of the government.

The findings that the Brookings Institution has placed before the government are based on World Bank poverty norms stated as ‘X dollars per person per day in purchasing power parity prices in a particular year’. There is an interesting history to the origin and use of these estimates.

Indian estimates of poverty are based minimum nutritional requirements in terms of calorie intake per person per day, based on Aykroyd Scales. This goes back to estimates presented in the 1970s, by a task force that I chaired. More recently, an attempt has been made to add social needs to such requirements. The whole issue is now being examined afresh by the NITI Aayog.

When the World Bank announced its first estimate of poverty with ‘a dollar one per person per day’ norm applied across countries, it used Purchasing Power Parity (PPP) rates rather than exchange rates. Interestingly, at that time one of the arguments the Bank used to justify this norm was that the ‘dollar one’ requirement was equal to the Indian ‘minimum nutritional calorie requirement’ norm.

Even at that time, some of us pointed out that if PPP was worked out at American prices, Indian urban poverty for example would be estimated at a very high figure. I remember commenting half in jest that I was a highly paid professional in India, but was below the World Bank poverty line. In fact, Indian representatives at the World Bank boards had also pointed out this problem.

Purchasing power parity prices create a very special problem because they are based on market exchange rate calculation and this, in turn, is based on weights between countries, estimated by their trade structure in terms of the commodity spread of exports and imports.

This, of course, has nothing to do with the consumption pattern of poor people. This creates considerable difficulties of a conceptual nature. Trade weights are not the weights of the consumption pattern of the poor people and, as such, the purchase parity norms can give weird results. At one stage, they were showing that more than two-thirds of Indians in urban areas were poor; today they show that there is little poverty in India.

They were wrong then and they may be wrong now.

Poverty in India has been falling, according to all estimates, and this has been happening gradually over four decades. But only the very brave, the Brookings Institution and some World Bank economists will say that it has been nearly eliminated in India.

The writer is a former Union minister.

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