Poverty Line Estimation – Explained Pointwise

Recently, the World Bank has announced a major revision to global poverty estimates, raising the International Poverty Line (IPL). It raised the IPL from $2.15/day (2017 PPP) to $3.00/day (2021 PPP) (which at PPP-Exchange Rate for Indian Rupee in 2025 is Rs 20.6), thus, it comes out to be Rs 62/day for India. While the change led to a global increase in the count of extreme poverty by 125 million, India emerged as a statistical outlier in a positive direction. Based on this update, it is now stated that only 5.75% Indians live under extreme poverty (down from 27% in 2011-12).

What is a POVERTY LINE?

• A poverty line is a defined threshold that determines the minimum level of income or consumption necessary for an individual or household to meet basic living needs such as food, shelter, and clothing. Those whose income or consumption falls below this line are considered to be living in poverty.
• The poverty line defines the minimum income or consumption level required to sustain a decent standard of living. It helps classify people as poor or non-poor and guides efforts to improve living conditions and eradicate poverty.
• The poverty line may be based on absolute measures (fixed minimum needed for survival, e.g., the World Bank’s $1.90 per day) or relative measures (defined in relation to the median income or living standards within a society).

India’s Poverty Line Analysis:

What is the IMPORTANCE of Poverty Line?

1. Quantifying the Problem: The primary importance of a poverty line is to provide a quantifiable measure of poverty. It helps answer the fundamental question: “How many people are poor in India?” This headcount ratio is crucial for understanding the scale of the challenge.

2. Tracking Progress: By establishing a benchmark, the poverty line allows the government and researchers to monitor the effectiveness of various development programs and policies over time. A decline in the percentage of people below the poverty line indicates progress in poverty alleviation efforts.

3. Targeting Welfare Schemes: This is perhaps the most direct and critical function of the poverty line. A vast array of government welfare programs are specifically designed to benefit households identified as Below Poverty Line (BPL). These include:

• Public Distribution System (PDS): Providing subsidized food grains (rice, wheat) through ration cards to BPL families under the National Food Security Act (NFSA).
• Housing Schemes: Programs like Pradhan Mantri Awas Yojana (PMAY) for both rural and urban areas aim to provide affordable housing to the poor.
• Employment Guarantee Schemes: While MGNREGA is universal, the poverty line can still inform the identification of most vulnerable households within villages.
• Social Security Pensions: Schemes like the National Social Assistance Programme (NSAP) provide pensions to the elderly, widows, and disabled persons identified as BPL.
• Health Schemes: Ayushman Bharat – PM Jan Aarogya Yojana provides health insurance coverage to the poorest and most vulnerable families.

4. Evaluating Economic Growth: The poverty line helps assess whether economic growth is “inclusive” or “pro-poor.” If GDP is rising but the poverty rate is stagnant or increasing, it signals that the benefits of growth are not reaching the most vulnerable sections of society.

5. Constitutional and Legal Mandates: The Indian Constitution enshrines the goal of a just and equitable society. While not explicitly mentioning a “poverty line,” the efforts to define it align with the Directive Principles of State Policy, which call upon the state to promote the welfare of the people by securing a social order in which justice, social, economic, and political, shall inform all the institutions of national life. Poverty estimation helps in fulfilling this mandate.

6. International Comparisons: While India has its own methodologies, international poverty lines (like the World Bank’s $2.15/day PPP) allow for global comparisons, showing India’s relative standing in poverty reduction efforts compared to other developing nations.

What are the CHALLENGES related to Poverty Line?

1. Defining “Basic Needs”: What constitutes “basic needs” is inherently subjective and changes with societal development, expectations, and inflation. The monetary value chosen for the poverty line can seem arbitrary, and even small changes to the line can drastically alter the number of people classified as poor.

2. Exclusion of Essential Non-Food Items: Earlier poverty lines were heavily weighted towards food. While later committees (like Tendulkar and Rangarajan) included health and education, critics argue that the allocation for these vital services often remains insufficient, assuming the state provides most of it for free, which isn’t always the case or of adequate quality. Also, what was considered essential years ago (e.g., specific food items) might change, and new necessities (e.g., mobile phones, basic internet access for education/work) might emerge. Updating these baskets is a complex and politically charged exercise.

3. Lack of Official Poverty Line Updates: The government has not officially updated or declared new poverty lines based on a domestic methodology since the Tendulkar Committee’s 2011-12 figures. This has created a vacuum. The Household Consumption Expenditure Survey (HCES), conducted by NSSO, is crucial for updating poverty estimates. The 2017-18 HCES data was withheld due to “data quality issues,. The latest HCES (2022-23/2023-24) has been released, providing updated consumption expenditure data, but official poverty lines based on this are yet to be finalized.

4. Debate Over Actual Poverty Trends: There’s ongoing debate among economists and researchers about whether poverty has truly declined as rapidly as some estimates suggest. Factors like demonetization, the COVID-19 pandemic, and concerns about unemployment and real wage stagnation have led some to argue that progress might have slowed or even reversed for some sections.

5. Regional Disparities: India is a vast country with enormous variations in prices, living costs, and access to public services across states and between rural and urban areas. A single national poverty line (or even state-specific lines adjusted by a national index) may not accurately reflect the ground reality in diverse regions.

What can be the WAY FORWARD?

1. Mandate for a Modern Basket: The government should immediately constitute a new expert committee, similar to the Tendulkar and Rangarajan committees, but with a broader and more contemporary mandate. This committee should define a “Poverty Line Basket” (PLB) that truly reflects the minimum requirements for a dignified life in 21st-century India. The committee should recommend a mechanism for periodic revision and updating of the poverty line (e.g., every 3-5 years) to account for inflation, changes in consumption patterns, and evolving societal standards.

2. Leverage the Latest HCES Data (2022-23): The HCES data should be fully utilized to derive poverty lines and estimates at state-specific, rural-urban, and potentially even sub-state levels, reflecting the vast economic and cost-of-living disparities across India.

3. Embrace a Multi-Tiered Approach to Poverty Measurement: India should move beyond the debate of a single poverty line. A multi-tiered framework would be more appropriate:

• Extreme Poverty Line: Aligned with the World Bank’s international poverty lines (e.g., the revised $3.00/day PPP) for international comparisons and to track progress on SDG 1.
• National Poverty Line: A domestically derived, consumption-based line reflecting the minimum for a dignified life. This could be akin to a “basic needs” poverty line.
• Vulnerability Line/Near-Poor Line: A line slightly above the national poverty line to identify households that are not officially “poor” but are highly vulnerable to falling into poverty due to economic shocks (e.g., illness, job loss, climate events). This group also needs policy attention.

4. Strengthen Multidimensional Poverty Index (MPI): The MPI should be officially recognized as a primary and complementary tool for poverty measurement, not a replacement for a consumption-based line. Use MPI to identify specific deprivations (e.g., sanitation, cooking fuel, education access) at granular levels (district, block) to design targeted, multi-sectoral interventions. Continuously improve the data sources and frequency for MPI calculation (e.g., by integrating HCES data with NFHS and other administrative data).

Conclusion:
By establishing a robust, multi-tiered poverty measurement framework, leveraging new data and technology, and ensuring transparency in the process, India can refine its understanding of poverty, strengthen its welfare programs, and accelerate its journey towards becoming a truly inclusive and developed nation.