By Rajesh Mahapatra
How does a country achieve rapid poverty reduction? For decades, India has struggled to get the right policy mix that helps lift millions out of poverty. Now the World Bank seems to have a unique solution: Set a low threshold for measuring poverty, inflate people’s incomes, and the result is a miracle narrative.
The Bank’s latest estimates on poverty show extreme poverty in India—measured at a threshold of $3 per person per day in Purchasing Power Parity (PPP)—fell dramatically from 27.1% in 2011 to 2.6% in 2023. Nearly 500 million Indians escaped extreme poverty in just 12 years. Further, poverty measured with a benchmark of $4.20 PPP per day for a lower-middle-income economy like India dropped from 57.7% to 16.1%.
The Indian government has lost no time to promote these findings, with Finance Minister Nirmala Sitharaman swiftly describing them as proof of effective economic policies, job creation, and consumption growth.
A closer scrutiny, however, reveals a stark disconnect between statistical claims and lived realities.
The PPP Delusion: The core flaw lies in using PPP rates for 2021 to set poverty lines. While market exchange rates placed the US dollar around Rs 80 then, the PPP conversion valued one dollar at roughly Rs 21, based on relative purchasing power for essential consumption such as food, clothing and shelter.
The Bank’s extreme poverty line for India thus equates to roughly Rs 63 per person per day, or Rs 7,500 per month for a family of four. Similarly, the threshold of $4.2 per person per day for poor but not-so-poor works out to Rs 85/day or Rs 10,000 per month.
Few would agree that these are realistic thresholds.
Imagine a migrant couple from Balangir working at a brick kiln in Chhattisgarh. Even with a six months’ employment, they could be averaging a monthly income of about Rs 15,000. Does that make them extremely poor, or poor? By the World Bank’s reckoning, they would be counted as not poor.
Yet in reality, they struggle with seasonal displacement and chronic inability to cover basic healthcare, food, and education.
Welfare is not income: A second major distortion arises from conflating government subsidy with private income. Because household income is difficult to measure, India’s National Sample Survey measures Monthly Per Capita Consumption Expenditure (MPCE). The World Bank relies on these surveys that record expenditures across different recall periods: annual for durables, clothing, footwear, and hospital stays; monthly for school fees; and weekly for daily consumables like food grains, pulses, and oils.
The distortion occurs during valuation. When a household receives free ration from the government—such as free food grains (5 to 10 kilograms per person), free school uniforms, shoes, or textbooks—surveyors assign a monetary value to these items and include it in private household consumption expenditure.
Conflating public welfare with private purchasing power creates two key errors.
Non-labour public transfers do not reflect earning capacity and should never be treated as household income. A family earning barely Rs 6,000 rupees a month may be receiving government transfers worth a similar amount and could, thus, be deemed as non-poor.
By the government’s own account, 80 crore Indians receive free rations, because most of them lack income to buy food. Treating emergency safety nets as proof of private wealth creation produces an artificial statistical exit from poverty.
Everyone loves flawed data: Flawed metrics persist due to aligned political and institutional incentives.
India has had its own poverty lines established by expert committees and routinely counted its poor. The practice has stalled in recent years. Instead, it has been leaning on the World Bank’s estimates that suit its political narrative well.
On the other hand, data showing a sharp decline in poverty takes the pressure off the World Bank, which has lately struggled to meet its core mandate of supporting welfare and development spending in poor and developing economies.
The writer, a New Delhi-based journalist, is formerly the Editor of Press Trust of India and Executive Editor of Hindustan Times.