To measure poverty, you have to define it, and intrinsic in any definition of poverty are judgments about what it means to be poor, what it means to be not-poor—and what the second group owes the first…
This column looks at a proposed revision to India’s official poverty line, the latest in a long series of attempts by expert committees to decide how to count the country’s poor. Redrawing the line is always controversial, raising an unsettling question: Is it even possible to measure poverty fairly? A poverty measurement isn’t quite like most economic measurements, after all. To measure poverty, you have to define it, and intrinsic in any definition of poverty are judgments about what it means to be poor, what it means to be not-poor—and what the second group owes the first.
The June report recommending revised poverty thresholds, for instance, says the Indian Government’s current methodology doesn’t “reflect the changing times and aspirations of the people.” That’s a lofty standard the report is setting for itself. But how would we even know if the proposed new formula did better on this score? Economist Angus Deaton suggests that perhaps the best way to set the poverty line is by taking an opinion poll. “If we are going to label people as poor and treat them differently because they are poor, for example by giving them food subsidies,” he writes in his 2013 book “The Great Escape,” “the opinion of the general public—whose taxes are being used for the purpose—should have something to do with where the line is set.”
Part of the difficulty for India is that it uses an “absolute” poverty line, or one based on some specific level of spending deemed necessary to avoid extreme want. That makes it eternally vulnerable to criticism that it fails to translate adequately into tolerable living conditions. In their recent book, “An Uncertain Glory,” the economists Jean Drèze and Amartya Sen point out that India’s current poverty threshold is based on a monthly budget for footwear that, at less than $0.20, would allow a poor person to get a sandal strap repaired once a month. The budget for health-care expenses, they write, “might buy something like the equivalent of an aspirin a day.”
One way to estimate poverty without getting into these guessing games is described in the new Government report’s annex, which was authored by Mahesh Vyas, managing director of the Centre for Monitoring Indian Economy, a Mumbai-based research firm. Instead of trying to determine from up high what Indians’ basic needs should be—how much nutrition, how much education, how much footwear—Mr. Vyas simply defines poverty as the inability to save money.
The poor aren’t poor, in other words, because they can’t spend enough to meet some carefully calibrated calorie or spending threshold. “People who are poor are people who cannot make ends meet,” Mr. Vyas says. That suggests that if you plotted a sample of people’s monthly incomes along one line and their expenditures along another, you might expect the expenditure line roughly to fall above the income line toward the left side of the graph. That’s where the poor, whose earnings don’t cover their expenses, would be. The opposite would be true toward the right side of the graph, where you’d find the wealthy. The point where the two lines cross is the poverty line: the level of earnings at which people can just barely meet their spending needs.
Mr. Vyas makes exactly such a plot, using data from the CMIE’s survey of 150,000 Indian households. And the results, it turns out, aren’t too different from those in the body of the report: You’re poor if you spend below 1,010 rupees a month in the countryside or 1,282 in cities, or $17 and $21 at market exchange rates, respectively. The main report’s thresholds are $16 and $23.
Mr. Vyas’s hope is that his method will start a conversation among researchers, most of whom, he says, have “strayed away from this very elementary, basic principle of defining poverty.” He says the committee didn’t officially adopt his approach out of concerns about using privately collected data, not because they objected to the basic methodology. Mr. Drèze, the economist, says that with the Indian Government moving away from using the poverty threshold to target benefits, the exact line matters a lot less than it used to. Any benchmark could do, as long as it is interpreted correctly.
“I would be even happier to have two or three lines to check what happens when poverty is taken at different points,” Mr. Drèze says. “Let’s not pretend that we have some kind of metaphysical justification for it.”