IndiaPost.com - Poverty falls in India, but number of poor increases

India Post News Service

NEW YORK: Poverty rate in India has dramatically declined although the number of poor has increased in 20 years up to 2005, according to new World Bank economic estimates. As per the revised estimates for India, the percentage of people living below the $1.25 a day decreased from 60 percent in 1981 to 42 percent in 2005. Even at a dollar a day (2005 prices), poverty has declined from 42 percent to 24 percent over the same period.

India’s purchasing power parity rate in 2005 is estimated to be 40 percent of the market exchange rate, up from 23 percent in the 1993 PPP. As a result, poverty levels measured against an international benchmark are higher in the latest global estimates. Both the dollar a day and $1.25 measures indicate that India has made steady progress against poverty since the 1980s, with the poverty rate declining at a little under one percentage point per year. The estimated poverty rates correspond to 267 million people living below a dollar a day in 2005, down from 296 million in 1981. However, the number of poor under $1.25 a day has increased from 421 million in 1981 to 456 million in 2005.

This indicates that even while the number of people living on less than one dollar a day has come down, there are a large number of people living just above this line of deprivation and their numbers are not falling. High GDP growth in India has reduced poverty. However, to achieve a higher rate of poverty reduction, India will also need to address inequalities in opportunities that impede the poor from participating in the growth process.

Estimates using the national poverty line as a benchmark place India’s poverty rate at 28 percent in 2004/05, the World Bank estimates indicate. World trends Worldwide, the Bank’s improved economic estimates showed there were more poor people around the world than previously thought while also revealing big successes in the fight to overcome extreme poverty.

The new estimates, which reflect improvements in internationally comparable price data, offer a much more accurate picture of the cost of living in developing countries and set a new poverty line of US$1.25 a day.

They are based on the results of the 2005 International Comparison Program (ICP), released earlier this year. In a new paper, "The developing world is poorer than we thought but no less successful in the fight against poverty," Martin Ravallion and Shaohua Chen revise estimates of poverty since 1981, finding that 1.4 billion people (one in four) in the developing world were living below US$1.25 a day in 2005, down from 1.9 billion (one in two) in 1981.

An earlier estimate-of 985 million people living below the former international US$1 a day poverty line in 2004-was based on the (then) best available cost of living data from 1993. The old data also indicated only about 1.5 billion in poverty in 1981. However, the new and far better ICP data on prices in developing countries reveal that these estimates were too low. The new estimates continue to assess world poverty by the standards of the poorest countries.

The new line of US$1.25 for 2005 is the average national poverty line for the poorest 10-20 countries. India is poorer than we thought by international standards, but no less successful against poverty, the researchers say.

"The new estimates are a major advance in poverty measurement because they are based on far better price data for assuring that the poverty lines are comparable across countries," said Martin Ravallion, Director of the Development Research Group at the World Bank, "Data from household surveys have also improved in terms of country coverage, data access, and timeliness."