A low poverty line results in diminished economic growth and flawed policies like demonetisation.

The development agenda today is largely about drawing an arbitrary line for poverty and focusing on a narrow goal of pulling individuals just above this line. Multilateral development organisations like the UN and the World Bank play an important role in setting the development agenda for poor and middle-income countries like India, but have not done enough to push for a realistic global poverty line.

The World Bank defines poverty as earning less than $1.90/day, after adjusting for purchasing power parity. The UN recently released its Multidimensional Poverty Index, which considers poverty to not just be a deprivation in income, but also in other indicators of well-being.

The international poverty line, however, remains the most intuitive and widespread tool used to measure poverty.

Also read: UNDP data on poverty shows gains are in line with Modi’s slogan, not a product of it

But many economists have found that there is no discontinuity (or sharp non-linearity) around the poverty line in any objective/subjective indicator of well-being. In other words, there exists no line of poverty.

If development agencies insist on having a line for use as proxies for poverty measurement like the head count ratio (HCR), then it should be at a much higher level to enable us to assert with 100 per cent confidence that people above this line are NOT poor. Not only is the current poverty line too low, leading to far too many people being excluded from the development agenda, but this low line is also nudging governments and international development agencies to focus exclusively on programmatic and targeted approaches to poverty reduction.

There are approximately one billion people (call them ‘extremely poor’) below the $1.90 line and 1 billion (call them ‘prosperous’) above the $15 line (set by OECD/rich countries). That leaves 5 billion people who are poor by a reasonable global standard of poverty, but not poor according to the $1.90/day definition. This is a dangerously low-bar definition of poverty – no one in the history of mankind has celebrated crossing the $1.90 threshold (thank you Lant Pritchett for that great metaphor).

A focus on reducing $1.90/day poverty excludes the legitimate concerns and needs of 5 billion people from the development agenda. In Indonesia, for example, the headcount $1.90/day poverty was only 10.6 per cent in 2016 – which means, 9 in 10 Indonesians weren’t included in the international “end extreme poverty” agenda even when many of them experienced unacceptable deprivation in human well-being.

Also read: Poverty or inequality- What is more important for India and Indian economists

Similarly, according to the $1.90/day definition, only 4.7 per cent of Indians are extremely poor, but a democratic government cannot base its development agenda by excluding 95 per cent of the country’s population. Hence, an Indian government has very little incentive to form an agenda specifically for the poor. This becomes a relevant point with 2019 general elections just around the corner in India. Political parties cannot win an election with agendas that exclude most citizens.

The $1.90 line is surely not an adequate measure of global poverty – analysts have suggested that $7.40/day is the minimum necessary to achieve decent nutrition and life expectancy. Therefore, agencies like the World Bank should have a higher global poverty line ranging between a lower bound of $7.40 and an upper bound of $15 (poverty line set by rich countries). That would enable us to say for sure who is poor and who is not. A broader agenda is necessary to focus on raising 6 billion people into prosperity as opposed to an exclusionary goal that makes gains only for 1 in 7 people on the planet.

In the Indian example, when the poverty line is broadened, obviously a larger proportion of the population gets included in it – something like 95 per cent of the Indian population. And the only way to reduce poverty for 95 per cent of the population is through market-led processes – i.e., economic growth. So, in a sense, the low bar poverty line constraints development thinkers and practitioners to implement redistributive models of development, which are more likely to be zero-sum games. Broadening the poverty line would allow and force us to look at a positive sum model of economic growth where everyone benefits. After all, most of the reduction of poverty in the world has indeed come from sustained episodes of economic growth, and increased labour mobility.

Also read: RBI data isn’t enough to argue if demonetisation was a success or failure

According to a study by Pritchett, et al. (2016), the growth accelerations in India in 1993 and 2002 led to a total gain of $3.7 trillion – a gain that wouldn’t have existed had there been no acceleration in economic growth. This phenomenal achievement was possible because of the shift towards more market-oriented policies at the general level, which led to a period of sustained economic growth. A corollary of the understanding that economic growth is the best way to reduce poverty would be that any policy that holds back or diminishes growth without any long-term benefits is criminal and should not be undertaken. An apt example of such a policy in the Indian context is demonetisation, which economists suggest led to a decrease in India’s growth rate with no significant benefits on its stated objectives.

Policymakers and citizens need to understand and appreciate the supreme importance of economic growth. Having a realistically higher poverty line will be an important step towards that goal.

Yash Mehta is working in the field of development research and is a Fellow at Citizens for Public Leadership (CPL). Aditya Jahagirdar is a development and public policy professional.

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  1. Author: The $1.90 line is surely not an adequate measure of global poverty – analysts have suggested that $7.40/day is the minimum necessary to achieve decent nutrition and life expectancy.

    Why stop at $7.40/day? Let us raise it to $75/ day per person. That would be a lot of fun. 95% of India’s population would be poor by those standards. With more than a billion poor persons in India itself, we can have a lot of fun. We can write millions of articles in papers and blogs on poverty. We can have a lot of research scholars studying poverty, etc… Let us have a party! As someone wrote a book or a paper titled: Everyone loves a good famine.

  2. The by-line of the article is at best misleading, and at worst, absolute bogus. Demonetization was not a consequence of a low poverty line.
    While it is all good and fun to theoretically arrive at a number for where the poverty line should be in a vacuum, please remember that the real world works with finite resources. Yes, perhaps by a global standard of living, 95% of Indians are poor. But given the existence of a finite set of resources, one must aim to maximize welfare of the most downtrodden. I agree that designing policy around whether you come above or below a certain income line is slightly absurd, and there is scope to redefine the system or raise it to necessarily include a certain quartile of the population, I disagree that 19 out of 20 people in India should qualify to be ‘below poverty line’.


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