Poverty in India: Has World Bank goofed up?

The World Bank said the other day that 24 per cent of all Indians in 2005 lived on an average of Rs 13.14 per day or less (taking the weighted average of the different figures for rural and urban areas).

Further, it said that another 18 per cent lived on an average of between Rs 16.49 and Rs 13.14 per day (once again, averaging the rural and urban numbers). If you do the maths for a population of about 1.1 billion people in 2005, what the Bank is saying is that 42 per cent of all Indians (about 460 million people) lived on less than Rs 250,000 crore. That was barely a tenth of total household expenditure in 2005 (which in turn is 60-65 per cent of GDP).

• Er. . . just how poor is India?

It's terrible if the poorest 42 per cent of the population account for only 10 per cent of all household expenditure. Oddly enough, the World Bank does not say that. Its World Development Indicators say that the bottom 40 per cent of the population accounted for over 19 per cent of all household consumption. That is almost twice as much as what the same World Bank is now telling us through its poverty numbers.

In fact, there is hardly any economy in the world in which the poorest 40 per cent of the population gets less than 10 per cent of total household income. The only major one is Brazil, where the figure is 9.2 per cent, but inequality levels in Brazil are miles ahead of what exist in India. China and the US are also more unequal than India, and even they had their bottom 40 per cent accounting for 12.8 per cent and 16.1 per cent of the total, respectively. So it is highly unlikely that India's bottom 40 per cent gets only a one-tenth slice of the total pie.

Unless I have got my maths or my method of making comparisons totally wrong, what this means is that we should place no value at all on the latest World Bank assertion that 42 per cent of the Indian population lives on less than $1.25 per day (calculated on the basis of purchasing power parity).

In fact, if (as the World Development Indicators tell us) the bottom 20 per cent of the population accounts for 8 per cent of all household consumption, then even their average income is higher than the rupee equivalent of $1.25 per day.

If so, the numbers living on less than $1.25 per day would be much smaller than even 20 per cent of the population.

One hesitates to conclude that an institution that specialises in making inter-country comparisons can have got its numbers so badly wrong - though Surjit Bhalla has argued repeatedly that that is indeed the case.

The conspiracy theorists will say that the World Bank's business is poverty eradication, and if it is to stay in business it needs to keep telling the world that there is a lot of poverty all around.

This does not wash, because even with sharply reduced estimates on the numbers that live on less than a dollar a day, there would be enough and more for the World Bank to do.

If the Bank's numbers are wide of the mark, they will make a difference to the poverty debate. The Left has argued over the years that the economic reforms have done little or nothing to tackle the poverty problem, since most of the benefits have gone to the wealthy and the middle-class.

But if poverty levels are in fact much lower than what the World Bank tells us, the truth may be different, and the Left may have got it wrong yet again.