Has extreme poverty vanished in India? And is it time for the poverty line to be redrawn?

Traditionally, poverty rates are measured using household consumption expenditure surveys. But there are alternate methods like imputing the growth rate in national accounts consumption to the mean to derive poverty levels. As for household surveys, there are three prominent methods.

The first, but now obsolete, is the Uniform Reference Period (URP), where survey respondents recall their expenditures incurred during the previous 30 days. Then there’s Mixed Reference Period (MRP) that includes respondents to recall low-frequency expenditures like buying clothes, durables, education over the past one year, besides a 30-day expenditure recall on other purchases. Lastly, there’s Modified Mixed Reference Period (MMRP) to list less frequent expenditure over a 365-day period, a 30-day period on items like fuel and light, rent and taxes and a 7-day period on perishables like vegetables and fruits.

Prior to the 1983 consumer expenditure surveys, consumption data in India was collected using the URP method, i.e., asking respondents about their expenditure in the previous 30 days. In 1983, we switched to MRP, where households were asked about their expenditures on three items over a 365-day period, along with a 30-day recall for other expenses. In 1993-94, the MRP method was broadened to include five major, but low-frequency consumption items like clothing and bedding, footwear, institutional medicine, education and durable goods, along with the 30-day recall of other expenses.

Lastly, around 1999-2000, purchases of perishables like vegetables and fruits began with a 7-day recall period began — the MMRP method. This is now our official method of measuring poverty. Even the World Bank endorses MMRP and has been urging countries to adopt it. Ironically though, the multilateral bank continues to use the outdated URP to estimate poverty in India and neither adjusts food subsidies and transfers, which explains the difference in poverty estimates.

Interestingly, the latest consumption expenditure survey, for the first time, calculated the imputed value of subsidies and transfers to capture the effect of fiscal interventions. While these measures seem to have cushioned the adverse affect of pandemic-induced income losses, the fact remains that the overall household expenditures over the past one decade remained low, turning in a CAGR of just 3%-3.5% for both urban and rural areas, respectively.