New Global Poverty Estimates – What it means for India ?

A new World Bank paper – The developing world is poorer than we thought but no less successful in the fight against poverty – indicates that the number of poor people in the world is higher than previously estimated but the pace of poverty reduction remains the same. 

In this new paper, Martin Ravallion and Shaohua Chen produce a major update of poverty numbers for the developing world between 1981 and 2005. The global poverty numbers have been updated because a new international price survey conducted in 2005 has revised upwards the cost of living data from an earlier survey in 1993. Based on this new data, the old international poverty line of $1.08 a day in 1993 Purchasing Power Parity (PPP) prices has been updated to a new international poverty line of $1.25 a day in 2005 PPP prices. The paper also produces estimates for poverty levels at a-dollar-a-day in 2005 PPP prices. To asses progress over time, the 2005 poverty lines have been adjusted back to 1981 using the best available consumer price indices for each country.

Global Estimates: Using this new data, the paper finds that poverty levels across the globe have declined, with 1.4 billion people (one in four) in the developing world living below US$1.25 a day in 2005, down from 1.9 billion (one in two) in 1981. In other words, global poverty rates fell from 52% in 1981 to 26% in 2005.

However, the paper also finds that the number of poor people in the world in 2005 – at 1.4 billion – was higher than the earlier estimates based on the then international poverty line of $1.08 in 1993 PPP. This earlier estimate had pegged the number of global poor in 2005 at below 1 billion.

India Estimates: Similarly, estimates for India also indicate a continuing decline in poverty. The revised estimates suggest that the percentage of people livingbelow $1.25 a day in 2005 (which, based on India’s PPP rate, works out to Rs 21.6 a day in urban areas and Rs 14.3 in rural areas in 2005 ) decreased from 60% in 1981 to 42% in 2005. Even at  a dollar a day ( Rs 17.2 in urban areas and Rs 11.4 in rural areas in 2005 ) poverty declined from 42% to 24% over the same period.

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. This means that the number of very poor people who lived below a dollar a day in 2005 has come down from 296 million in 1981 to 267 million in 2005.

However, the number of poor people living under $1.25 a day has increased from 421 million in 1981 to 456 million in 2005. This indicates that there are a large number of people living just above this line of deprivation (a dollar a day) and their numbers are not falling.

To achieve a higher rate of poverty reduction, India will need to address the inequalities in opportunities that impede poor people from participating in the growth process.

Source : The World Bank

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