India: Is poverty really decreasing?

On paper, India has much to celebrate. Around 248 million people living in the country escaped multidimensional poverty in the past nine years, according to a report by NITI Aayog, a government think tank.

The reportsuggests a 18% decline in multidimensional poverty over the last nine years, with the share of people living in this condition declining from 29% to 11%.

The numbers would appear to show strong progress towards the government's goal of  reducing multidimensional poverty to below 1%, but some economists have raised some serious doubts over the use of the Multidimensional Poverty Index (MPI) to make these claims, pointing out that the report does not paint the full picture. 

"The methodology is questionable," said Santosh Mehrotra, a visiting professor of development economics at University of Bath's Center for Development Studies.

Does the MPI accurately reflect poverty?

Multidimensional poverty is based on health, education and living standards, each of which is given equal weight. The three categories are divided into 12 indicators.

Every household in India is given a score based on the 12 parameters and if a household has a deprivation score higher than 33%, it is identified as multidimensionally poor.

The MPI, also called the Alkire-Foster method, was developed by the Oxford Poverty and Human Development Initiative to measure the levels and intensity of poverty. 

India has added two new parameters — maternal health and bank accounts — to its national MPI.

Some economists have argued that the devastating impact of COVID on poverty is missing in the report's findings — while others point out that the number and share of the population below the consumption poverty line, the traditional method of estimating poverty globally, is absent.

'Lack of relevant data'

Mehrotra argues that the purpose of using the national MPI as the poverty indicator for India, despite an absence of consumption expenditure surveys between 2014 and 2022, is part of a political strategy.

"Real wages were stagnant for six years which had serious implications for consumption demands and this cannot be consistent with decline in poverty levels," said Mehotra.

"Does the methodology and its results hold up to closer examination? Has the MDI been able to capture the full picture?"

Lekha Chakraborty, professor and chair at the National Institute of Public Finance and Policy, pointed out that any composite index has limitations as it is highly skewed based on the specific choice of variables, as well as the methodology used.

"Even the Human Development Index (HDI) constructed by UN every year is not free from conceptual and methodological criticisms as it is based on only selected three indicators and the way weightage is given to each of the variables," Chakraborty told DW.

In her reckoning, data constraints thwart the meaningful constructions of such composite indicators and economists always use "proxy variables" or "extrapolate" the data. 

"Poverty is dynamic, like chasing a moving target — using MPI for the policy decisions will be highly controversial," she added.

Controversies surrounding poverty estimates

The NITI Aayog report also claims that various government initiatives and welfare schemes have played a major role in mitigating different forms of deprivation.

Arun Kumar, a retired professor of economics from Delhi's Jawaharlal Nehru University, told DW that the government's report needs reinterpretation.

"There are lacunae. The health and education indicators which have the highest contribution to MPI were most adversely impacted in the pandemic year 2020–21," Kumar told DW.

"Using data from the fifth National Family Health Survey of 2019-21 must have led to substantial errors in the deprivation index based on the survey, opening the conclusions of the NITI Aayog report to suspicion," Kumar told DW, referring to a large-scale, multi-round survey conducted in a representative sample of households throughout India.

Controversies surrounding poverty estimates in India are not new and have been a subject of debate in the past as well over the estimation and methodologies employed.

Poverty numbers are important for assessing the economic progress of a country, and the government also needs these numbers to estimate the number of beneficiaries of schemes, such as the public distribution system for food, meant for poverty alleviation.

The World Bank defines the international poverty line at $2.15 (€1.97) per day in 2017 purchasing power parity (PPP). PPP is a measure of the price of specific goods in different countries and is used to compare the absolute purchasing power of the countries' currencies.

In October last year, India ranked 111 out of a total of 125 countries in the Global Hunger Index (GHI) 2023, with its progress against hunger nearly halted since 2015, reflecting a global trend. 

The GHI measures countries' performance on four component indicators — undernourishment, child wasting, child stunting and child mortality.

The government, though, contested India's performance, citing flawed methodology. In the index released, India has a score of 28.7, indicating a serious level of hunger.