Understanding Poverty and the Poverty Line in India

How many people in India are poor? The answer depends entirely on where you draw a single line. That line – the poverty line – separates those officially counted as poor from everyone else, and shifting it by even a few rupees can move tens of millions of people across the divide. Defining poverty and fixing this threshold is therefore one of the most consequential exercises in economic policymaking. It decides who qualifies for subsidised food, welfare benefits, and targeted schemes. This post explains what poverty means, how the poverty line is calculated, how the official methodology has evolved over decades, and why different methods produce wildly different numbers.

What does poverty actually mean? 🔗

At its simplest, poverty is the inability to secure a minimum acceptable standard of living. But “minimum acceptable” is not a fixed idea – it changes with how we choose to measure it. Economists generally split the concept into two broad approaches.

Absolute and relative poverty 🔗

Absolute poverty fixes a constant threshold based on the bare necessities of survival – food, water, sanitation, shelter, and clothing. The United Nations describes absolute poverty as a condition of severe deprivation of basic human needs such as food, safe drinking water, sanitation, health, and shelter. This line stays the same across regions and over time, which makes it useful for tracking progress. India, like most developing countries, relies primarily on absolute poverty measurement.

Relative poverty, by contrast, defines the poor as those falling well below the typical living standard of their society – for example, households earning less than the median income. This approach, used mostly by developed countries, captures inequality rather than mere survival. A person might meet all basic needs yet still be relatively poor because they cannot participate fully in the life of their community.

The poverty line and the Head Count Ratio 🔗

To convert the idea of poverty into a number, governments establish a poverty line: a specific level of income or consumption expenditure below which a person is officially counted as poor. In India, this line has traditionally been built from the cost of buying a minimum basket of goods needed for subsistence.

Once the line is set, the most common way to measure poverty is the Head Count Ratio (HCR). This is simply the proportion of the population living below the poverty line, also called the poverty ratio. If 20 out of 100 people fall below the threshold, the HCR is 20%.

The limitation of counting heads 🔗

The Head Count Ratio is easy to understand, but it has a serious flaw: it ignores the depth of poverty, so if the poor become even poorer, the index does not change. A person earning slightly below the line and a person in utter destitution are counted identically. The HCR tells you how many are poor, but not how poor they are. This is why measures like the poverty gap (which captures how far below the line people fall) and multidimensional indices have gained importance over time.

How India’s poverty line evolved 🔗

India’s poverty line was not designed once and left untouched. It has been revised repeatedly by a series of expert committees, each refining or rejecting the methods of its predecessor. Understanding this evolution explains why poverty estimates have shifted so much over the decades.

The Dandekar-Rath foundation (1971) 🔗

The first systematic, data-driven attempt to measure Indian poverty came from economists VM Dandekar and N Rath in 1971, using National Sample Survey data from 1960-61. Their key innovation was to anchor the poverty line to nutrition. They argued that the line must be derived from the expenditure adequate to provide 2,250 calories per day in both rural and urban areas. Rather than guessing at a “minimum standard of living,” they tied poverty directly to a measurable biological need – calorie intake. This calorie-anchored approach shaped official Indian poverty measurement for the next four decades.

The Alagh and Lakdawala committees 🔗

In 1979, a Planning Commission task force led by YK Alagh constructed poverty lines for rural and urban areas based on nutritional requirements and related consumption expenditure, recommending that future estimates be updated for inflation. Then in 1993, an expert group chaired by DT Lakdawala largely retained the calorie-based logic but introduced an important refinement. The Lakdawala Committee recommended building state-specific poverty lines and updating them using the Consumer Price Index for Industrial Workers in urban areas and for Agricultural Labour in rural areas. This made the line more sensitive to regional price differences.

The Tendulkar Committee (2009) 🔗

The Tendulkar Committee marked a major break from tradition. Set up to fix problems with the older approach – including outdated consumption baskets linked to 1973-74 patterns and flawed inflation adjustments – it moved away from anchoring the poverty line to a calorie intake norm. Instead, it adopted a broader basket that included spending on health and education, and it computed poverty lines for 2004-05 at a level equivalent in Purchasing Power Parity terms to about Rs 33 per day.

Using this method, the Planning Commission estimated that the poverty ratio had declined to 21.9% in 2011-12 from 37.2% in 2004-05. But the figures became politically explosive. The Tendulkar line worked out to roughly Rs 32 per capita per day in urban areas and Rs 27 in rural areas – numbers that many people found unrealistically low, sparking national outrage that someone spending more than Rs 27 a day could be deemed not poor.

The Rangarajan Committee (2014) 🔗

Responding to that backlash, the Planning Commission set up the Rangarajan Committee, which reported in 2014. It raised the threshold to a monthly per capita expenditure of Rs 1,407 in urban areas and Rs 972 in rural areas. The committee also used the more detailed Modified Mixed Reference Period for recording consumption, which it considered more precise. Because the bar was set higher, the poverty count rose sharply: the Rangarajan method estimated that India’s poor stood at about 29.5% of the population in 2011-12 – nearly 100 million more people than the Tendulkar estimate.

Notably, the government never formally adopted the Rangarajan figures. The official poverty estimates have therefore remained based on the Tendulkar methodology, and because the relevant consumption survey was not conducted for many years afterward, India effectively has not had an updated official poverty line since the one announced in 2014 for 2011-12 data.

Why the same year produces different numbers 🔗

The blog outline for this topic highlights a striking example: estimates for the same period can diverge dramatically depending on the methodology and data source used. This is not a contradiction or an error – it is the natural result of choices about what to measure and how.

Methodology drives the result 🔗

Several factors explain the gaps between estimates. First, the position of the line itself: a higher threshold automatically classifies more people as poor, which is exactly why the Rangarajan figures exceeded the Tendulkar figures by such a wide margin. Second, the reference period used to record household consumption matters – asking people to recall spending over 7 days, 30 days, or 365 days for different items yields different totals. Third, the choice of data source matters: estimates built directly on National Sample Survey consumption data differ from those scaled against National Accounts Statistics.

This is precisely the kind of divergence the outline points to. When two bodies use different definitions, baskets, or data sets for the same year, one can report a figure close to 19% while another places poverty far higher, in the mid-30s. Neither is necessarily “wrong” – they are measuring slightly different things. This is also why analysts insist that poverty figures from different committees or eras cannot be compared casually; a fall in the headline number might reflect a change in method rather than a real improvement in living standards.

Comparing poverty across countries 🔗

National poverty lines are tailored to a country’s own cost of living, which makes cross-country comparison difficult. To enable global comparisons, the World Bank maintains an international poverty line expressed in Purchasing Power Parity dollars, which adjusts for price differences between countries.

This benchmark has been revised repeatedly. For years the extreme poverty line sat at $1.90 a day, before being updated in September 2022 to $2.15 per person per day, based on 2017 prices. More recently, following the release of 2021 price data, the World Bank raised the extreme poverty line again to $3 per person per day, with the line for lower-middle-income countries set at $4.20 per day. The Bank also stresses that, because of revisions to exchange rates and prices, poverty rates for individual countries cannot be compared directly across different editions of its estimates.

These shifting global thresholds illustrate the same lesson seen domestically: poverty statistics are only as meaningful as the line behind them, and that line is a deliberate, revisable choice.

Beyond income: the multidimensional view 🔗

Income and consumption capture only part of what it means to be poor. Recognising this, India and the United Nations Development Programme now also track a Multidimensional Poverty Index (MPI), which looks at deprivations in health, education, and living standards rather than money alone. The MPI combines the headcount ratio with the intensity of deprivation, so it reveals not only how many people are poor but how poor the poor actually are. According to this measure, the share of India’s population that was multidimensionally poor fell from 24.85% in 2015-16 to 14.96% in 2019-21. This complements the older income-based poverty line and addresses some of the blind spots of the simple Head Count Ratio.

Why all of this matters 🔗

Poverty estimation is not an academic exercise. The poverty line determines eligibility for welfare schemes, the public distribution system, and dozens of targeted government programmes. An artificially low line can exclude genuinely needy families from support; an unrealistically high one can stretch limited resources too thin. The repeated revisions – from Dandekar-Rath’s calorie norm to Tendulkar’s broader basket to Rangarajan’s higher threshold and the World Bank’s evolving global line – all reflect an ongoing effort to define poverty in a way that is both accurate and fair. Getting that single line right is, in the end, about deciding who the state is responsible for lifting up.

What do you think? If raising the poverty line by a few rupees can add a hundred million people to the official count of the poor, should the line be set by economists, by political consensus, or by the people who actually live near it? And as the economy grows, should poverty be measured by bare survival or by the ability to live with dignity relative to everyone else?

References

1. https://www.drishtiias.com/to-the-points/paper3/poverty-estimation-in-india
2. https://en.wikipedia.org/wiki/Head_count_ratio
3. https://www.prsindia.org/tags/dandekar-and-rath
4. https://www.cbgaindia.org/opinion/the-debate-on-poverty-measures-2/
5. https://www.deccanherald.com/opinion/why-poverty-issue-problematic-2212481
6. https://www.levelupias.com/poverty-estimation-in-india/
7. https://www.pib.gov.in/newsite/printrelease.aspx?relid=108291&reg=3&lang=2
8. https://www.nextias.com/ca/editorial-analysis/16-03-2024/poverty-estimation-in-india
9. https://www.dataforindia.com/world-bank-poverty/
10. https://www.worldbank.org/en/news/factsheet/2022/05/02/fact-sheet-an-adjustment-to-global-poverty-lines
11. https://blogs.worldbank.org/en/voices/further-strengthening-how-we-measure-global-poverty
12. https://www.undp.org/india/national-multidimensional-poverty-index-progress-review-2023