In today’s Finshots, we explain a different way of looking at poverty and why a paper by a government think-tank has caused a stir.

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The Story

248 million.

That’s how many people we’ve pulled out of poverty in the past 9 years as per NITI Aayog.

But wait…when you hear poverty, you’re likely to think of the monetary aspect of it. If you know that it requires ₹x to lead a life with access to food, clothing, and shelter — the basics — then you can say someone has crossed the poverty threshold when they succeed in earning more than that. People are said to be in poverty if they don’t have enough money.

And it’s an idea that has been prevalent for over 200 years. Yup, the first real measure probably dates back to 1795 in the UK. A priest named David Davies decided to evaluate the lives of labourers in his region. He calculated how much money people would need to live in ‘tolerable comfort’. And he decided that anything below that would make them poor.

So yeah, we’re kind of used to having a standalone measure like the quantum of money to determine poverty. It’s fairly easy.

But that’s not what NITI Aayog measured. These folks decided to take a holistic approach and looked into something called Multidimensional Poverty.

What’s that, you ask?

Well, think about what outcome you get when using a number to measure poverty. You simply get to know who’s poor. You realize that these are the people who are unable to eke out a decent standard of living.

But it doesn’t tell you ‘how they are poor’.

For instance, back in the day, we arrived at a monetary value by first looking at how many calories a person needs daily. We came to the conclusion that 2,400 kilocalories for rural and 2,100 kilocalories in urban areas would determine the poverty line. Then we’d look at the wholesale price of certain food commodities and then say a person needs ₹x to buy the stuff needed to fulfill that requirement. But the problem with this is that you can meet the calorie count by consuming stuff like sugar. And that doesn’t consider the nutrition aspect at all.

So a person might be earning enough money to say they’re above the poverty line, but they’re nutritionally poor.

And it’s not just about nutrition, of course. That’s one example. It could be about children getting appropriate schooling, receiving a steady supply of electricity, having clean drinking water, or simply having access to bank accounts to receive government benefits that might be directly transferred to them.

Because being deprived of these elements creates a situation where poverty becomes a never-ending cycle that the family can’t get out of. The hardships compound.

And Multidimensional Poverty Indexes (MPI) seeks to measure just this. It takes into account numerous such variables — Health, Education, and Standard of Living — that present a more holistic picture of where things might be going wrong. And this helps governments refocus their efforts too. If they know malnutrition is a big problem, they can launch a scheme where fortified grains are included in the public distribution system. If the metric indicates that people are deprived of electricity, the priority could then be to ensure the electrification of all villages.

If some lack of purchasing power is compensated by welfare spending and direct benefit transfers, then that should be counted as income for the recipient.

Anyway, MPI is important because, quite often, things might be even more dire on this front than what simple monetary metrics indicate. For instance, the World Bank pointed out that 9% of people in the world lived in monetary poverty in 2018. But if you included all these other variables and measured multidimensional poverty, the number jumped to 14.5%.

So yeah, that’s what the NITI Aayog report tells us too. They measured multidimensional poverty and came to the conclusion that 248 million people have escaped the clutches of multidimensional poverty and that the prevalence of such poverty is falling dramatically.

Sounds good, no? It’s definitely something to cheer about.

But of course, not everyone agrees with using MPI as an indicator to gauge poverty and there have been some quibbles about the NITI Aayog paper.

For instance, some people might argue here saying that people are getting access to government benefits. These subsidies for foodgrains and cooking gas might be what’s helping. And that they may still not be earning the money required to keep them afloat. That if one day, suddenly, the tap on the benefits is turned off due to financial difficulties at the country level, the problems will be exacerbated.

But until then, as economist Ajit Ranade says, “If some lack of purchasing power is compensated by welfare spending and direct benefit transfers, then that should be counted as income for the recipient.”

It helps.

Next, as Santosh Mehrotra, a professor of Development Economics, highlights, there could be the problem of projections.

For instance, consider the year-on-year change in the 12 indicators for MPI. The government compared improvements or deficiencies recorded in the National Family Health Survey (NFHS) between 2005–06 and 2015–16. And then assumed a linear growth rate to calculate a drop in poverty for years where data might be missing — for 2014 for instance. And then, they took the survey data for 2019–2021 and simply extended the gains into 2022 and 2023. It’s a simple projection and the actual data may not back up the calculations.

But even then, there’s no denying that poverty has fallen.

A report recently published by the United Nations Development Programme (UNDP) uses similar survey data in India to discuss the state of poverty. It doesn’t interpolate or extrapolate data and the report notes that in 2005–06, 55% of India’s population lived in multidimensional poverty. This halved to 27% by 2015–16. And further fell to 16% during 2019–21.

So yeah, despite all the criticism, we definitely seem to be doing some good work on alleviating such poverty. And that is cause for cheer.

Until then…

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