When $0.65 and $1.25 Are a World Apart

U.S. $1 Bill | Source: Veer/Getty Images

The issue of poverty lines is widely debated throughout the international development community and government ministries. In fact, it is a hotly debated topic right now in India. What, exactly, is the purpose of setting a poverty line? A poverty line serves two quantitative functions: (1) to allow a country to gauge how many of its inhabitants are living in poverty and (2) to therefore determine how many people are eligible to receive government assistance as a result. The former also corresponds to a country’s level of development—obviously, the poorer a country’s inhabitants, the poorer the country. The latter is slightly more complicated, as it involves a government taking responsibility for its people and giving them, through government and aid programs, an opportunity to live above the poverty line. 

The use and determination of poverty lines are relatively new—the process of creating standardized gauges of poverty were formalized in the 1960s. However, the nuances of poverty lines and their cross-border applicability continue to be debated. For example, the $1-a-day per person poverty line was set in 1990 by the World Bank, and then increased to $1.25-a-day per person in early 2008. These numbers do not reflect the higher poverty lines in developed countries, nor do they express the variability of poverty lines amongst developing countries.

National Poverty Lines in Asia | Source: ADB (2008)

Currently, India is at the center of the poverty line debate. India’s Planning Commission decided that it was possible for people in rural communities to live on US$0.52 per day and that those living in cities could survive on US$0.65 per day. People questioned whether this was a sufficient amount to live on, especially considering that the number is substantially lower than the accepted world benchmark of $1.25. Naturally, Indian activists responded by daring the panel members to live on that amount themselves—accounting for food, health, and education. One article notes that:

Officially, 37% of India’s 1.21bn people live below the poverty line. But one estimate suggests the true figure could be as high as 77%.

Changing a nation’s poverty is a decision that recalculates the amount of aid one can receive from his government—the matter of a few cents declared as daily income translates into dollars when put in this perspective. In addition to determining the amount of government subsidies one can receive, the articles do not take into account the issue of daily incomes that fluctuate. Most jobs held by the poor are either sporadic in nature, or the amount earned is highly dependent on weather conditions, crop harvests, and day-to-day performance.

India's Planning Commission Deputy Chairman Montek Singh Ahluwalia | Source: The Hindu

Furthermore, the debate over poverty lines influences both the Millennium Development Goals (MDGs) and India’s role as an emerging superpower/BRIC country. As a country that consistently grows at around 8% per year, India economic performance is impressive and also largely unaffected by the euro crisis. This places India in a unique position to offer assistance to other developing countries while the European economies seek help instead of giving it. However, with India struggling to meet MDGs and implement effective anti-poverty programs for its own citizens, its economic performance may take a hit.

Despite strong indicators for India’s rising middle class, changing the poverty line does not elevate new people to the middle class, and it does not ensure that they will be able to survive without government subsidies. Instead, changing the poverty line will subject more people to life without government assistance, which could hurt India’s economic performance in the long run.  While no country wants to provide permanent assistance for its citizens, ignoring millions of people by changing the poverty line will not yield the desired results. India’s poverty benchmarks should address the varying levels of poverty experienced by its citizens. Without acknowledging the range of poverty—from the ultra poor to those hovering near the poverty benchmark—India could become a world power with a substantial population living in poverty.

India Poverty Headcount Index (2000) | Source: World Resources Institute

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