Measuring poverty?

A "corrupt" poverty line?

The number of poor in India is measured by a poverty line that is probably one of the most disputed and incessantly attacked measuring tools in the world of development economics. 

   

What’s more, the World Bank’s controversial poverty line has its origins in the Indian model! It is simply what some call a “starvation line”, a line that accounts for the feeling of satiety: measured in calories.

You may be eating bread all year (or all your life) and use up your body in a few years, you may be living in a flimsy house that flies away at the first storm, and you may not have access to clean water or education: all this doesn’t matter, does it?

The statistics

•     50% of Indians don’t have proper shelter;
•     70% don’t have access to decent toilets;
•     35% of households don’t have a nearby water source;
•     85% of villages don’t have a secondary school;
•     Over 40% of these same villages don’t have proper roads connecting them. 

A customer gets a shave at a barber shop illuminated by the torch function of a mobile phone at night in a village on the outskirts of Alwar, Rajasthan, India, on Tuesday, April 17, 2018. (Photo credit Bloomberg)

How many Indian citizens have access to electricity?

Indian Prime Minister Narendra Modi's pledge to bring reliable power to all, at the time when the World Bank reported India has world’s largest un-electrified population, propelled him into office in 2014. In the year after his election, an audit identified 18,452 villages without electricity, and he promised that every village would be electrified within 1,000 days. April 28, when Leisang, a tiny hamlet in the remote northeastern state of Manipur, was connected to the grid, was 988 days since that promise. Modi tweeted that it would be “remembered as a historic day in the development journey of India.”

No doubt a massive accomplishment, but a closer look at what constitutes “electrified” reveals how much further India has to go. According to official data, only 1,417 of India’s 18,452 villages, or 7.3% of the total, have 100% household connectivity, and about 31 million homes are still in the dark. The government deems a village “electrified” if power cables from the grid reach a transformer in each village and 10% of its households, as well as public places such as schools and health centers, are connected.

Kristina Skierka, of Power for All, a coalition of over 200 public and private organizations campaigning to deliver universal electricity access by 2025, claims that “total electrification” is far from reality and can only be achieved when all the hamlets and households are covered. “As, defined, ' village electrification’ still leaves 90% of the people living in India’s 18,452 targeted villages without electricity ,”  she says.

Ambitious goal

Homes without electricity are spread across major provinces of the country, such as Assam, Bihar, Jharkhand, Odisha, Madhya Pradesh, and Rajasthan, each having nearly 6 million unconnected households. “Uttar Pradesh, the giant north Indian state, accounts for 14.6 million households without electricity access,” says Debajit Palit, associate director at The Energy And Resources Institute.

Last year, the government followed up with a $2.5 billion program, Saubhagya, to provide power connections to nearly every household by the end of March 2019. “The Saubhagya goal is very ambitious. To achieve the target by March 31, 2019, the connection rate should be 2.03 million households per month,” says Palit. “However, data from Saubhagya portal indicates that around 0.73 million connections have been released per month from the launch of the scheme in last October to end of April.”

Electrification is a three-step process, Palit explains. The first is to extend the infrastructure to the village, the second is to connect the household and the third, the most challenging, is to ensure reliable and affordable supply on a sustained basis. “The government has achieved the first goal, and the second goal is progressing. We now have to look forward to how the most critical goal unfolds,” Palit adds.

Unreliable data and power supply

Efforts to provide electricity to every Indian have historically been hampered by poorly designed and implemented schemes that encouraged contractors to do the bare minimum to make sure a village qualified as electrified, resulting in inconsistencies in official data, and glaring disparities on the ground.

“What is required from the federal government is to push the state-run distribution companies to carry out robust ground surveys and organize frequent camps to achieve the target so that not one household is left out from electrification,“ says Palit. “Unless that is done, the reliability of supply and viability of the distribution business will be difficult to achieve.”

Electricity supply is controlled and maintained by India’s state governments, and, according to Vinay Rustagi of Bridge to India, a knowledge services provider in the Indian renewable space, these government-owned distribution companies “remain the weakest link” in the power sector value chain. “They are badly run and unable to invest in upkeep of the local distribution infrastructure.” Reliability of electricity supply is “likely to remain a dream” for most consumers in India for years to come, Rustagi adds.

A study conducted by the Council on Energy, Environment and Water showed that over 50% of electrified rural households in Uttar Pradesh, Bihar, Madhya Pradesh, Jharkhand, Odisha and West Bengal don’t even get 12 hours of supply in a day.

The latest Global Off-Grid Solar Market Report shows that grid reliability challenges are more severe in dispersed rural areas than in cities. According to Anjali Garg, an energy specialist at International Finance Corporation, though India has put rural electrification in a sharper focus over the last few years, upgrading of local distribution infrastructure, including metering and billing, is crucial. “That will determine whether the schemes launched for total village electrification bear the desired results and lead to true 100% household electrification.”

To achieve a consistent round-the-clock power supply, considerable improvement in the operational efficiency of distributors through extensive and intensive change management and capacity-building programmes as well as strengthening of the electricity sub-stations and sub-transmission network are required. “At the same time, electricity must be priced rationally and the tariff structure is simplified,” Palit says.

Renewable energy solutions

To truly achieve universal access to energy, distributed renewables have a crucial role to play, experts say. Since power supplies in many villages remain unreliable, some people have been using solar energy, which has reached some villages before government power lines, to run their businesses. “A substantial ‘on-grid’ population in India has also been dependent on off-grid solutions,” says Garg. “Solar home system and mini-grid connections operating together is the most sustainable last-mile solution to reach consumers and achieve universal access to energy.”

Echoing similar sentiment, Skierka says, “Decentralized renewable energy solutions such as mini-grids and rooftop solar are a critical part of the solution to go where the grid can’t reach or reliably serve.”

Also, with India depending on coal to meet more than 60% of its electricity requirement and coal production stagnating, it will be no easy task for the government to fulfil its promise of uninterrupted power supply without the help of the solar energy sector.

Many of India's energy distribution companies have accumulated huge losses, and have no funds to keep buying much-needed power.

Power failures shave percentage points off the country's growth, inhibiting development and delaying the time when millions below the poverty line can live a life of dignity. However, India has made significant strides in electrification since 2000. Electricity reached 82% of the population in 2016, up from 43% at the turn of century, according to the International Energy Agency. “Also, there’s a precedent in India that large number of connections can be provided in short time,” says Palit. “West Bengal’s rural electrification rate more than doubled from 40% in 2011 to 95% in 2016, connecting an additional 7.8 million households.”

The government has said all of India’s rural Indian households will have electricity by 2019. And about 83% have electricity as of Monday, according to its real-time progress tracker. “I think a more reasonable time frame to connect all households across different states in India is 2021, which is a year before India celebrates 75 years of Independence,” says Palit.


Our world in data . . .

Global extreme poverty . . .

 
Global Extreme Poverty
by Max Roser and Esteban Ortiz-Ospina
First published in 2013; substantive revision March 27, 2017.

I. Introduction
 
I.1 Overview of this entry

This entry is concerned with extreme poverty. The World Bank is the main source for global information on extreme poverty today and it sets the International Poverty Line. The poverty line was revised in 2015—since then, a person is considered to be in extreme poverty if they live on less than 1.90 international dollars (int.-$) per day. This poverty measurement is based on the monetary value of a person's consumption. Income measures, on the other hand, are only used for countries in which reliable consumption measures are not available.

A key difficulty in measuring global poverty is that price levels are very different in different countries. For this reason, it is not sufficient to simply convert the consumption levels of people in different countries by the market exchange rate; it is additionally necessary to adjust for cross-country differences in purchasing power. This is done through Purchasing Power Parity adjustments (explained below).

It is important to note that the International Poverty Line is extremely low. Indeed, 'extreme poverty' is an adequate term for those living under this low threshold. Focusing on extreme poverty is important precisely because it captures those most in need. However, it is also important to point out that living conditions well above the International Poverty Line can still be characterized by poverty and hardship. Accordingly, in this entry we will also discuss the global distribution of people below poverty lines that are higher than the International Poverty Line of 1.90 int.-$.

Poverty is a concept intrinsically linked to welfare – and there are many ways in which one can try to measure welfare. In this entry we will focus mainly (though not exclusively) on poverty as measured by 'monetized' consumption and income, following the approach used by the World Bank. But before we present the evidence, the following introductory sub-section provides a brief overview of the relevance of this approach.

The available long-run evidence shows that in the past, only a small elite enjoyed living conditions that would not be described as 'extreme poverty' today. But with the onset of industrialization and rising productivity, the share of people living in extreme poverty started to decrease. Accordingly, the share of people in extreme poverty has decreased continuously over the course of the last two centuries. This is surely one of the most remarkable achievements of humankind.

Closely linked to this improvement in material living conditions is the improvement of global health and the expansion of global education that we have seen over these last two centuries. We also discuss the link between education, health, and poverty in this entry.

During the first half of the last century, the growth of the world population caused the absolute number of poor people in the world to increase, even though the share of people in poverty was going down. After around 1970, the decrease in poverty rates became so steep that the absolute number of people living in extreme poverty started falling as well. This trend of decreasing poverty—both in absolute numbers and as a share of the world population—has been a constant during the last three decades. 

This important entry from Our World in Data takes a global view, but references alternatives to the dominant methods used to estimate monetary poverty, including this innovative approach set out below,  a project that used satellite images of South Asia by night to estimate observable changes over time.

   
V.7 What alternatives are there to estimate monetary poverty?

The poverty figures published by the World Bank are based on 'microeconomic data' — specifically, household surveys. A second way of measuring poverty is to start from 'macroeconomic data', particularly the National Accounts, which report the aggregate total economic activity of a nation including the GDP. This second approach was first explored by Ahluwalia et al. (1979) [1], and as we point out above, historical estimates of poverty, such as those from Bourguignon and Morrison (2002), also follow this approach.

In theory, measures of poverty derived from the National Accounts should match measures of poverty derived from household surveys, but in reality there are often substantial discrepancies. Deaton (2005) [2] reviews the reasons for these discrepancies.

Given that both approaches are subject to measurement error, it is natural to wonder which of the two methods is superior. Do National Accounts or household surveys give us a better understanding of the levels and changes of poverty? Economists in recent years have started taking this question seriously and asked how much weight should we give to National Account estimates vis-à-vis household-survey estimates?

Pinkovskiv and Sala-i-Martin (2016) [3] try to answer this question.

They begin by noting that economic activity around the world has been shown to correlate with satellite-recorded data on nighttime lights from the surface of the Earth, which are visible from space. We discuss this in more detail in our entry on light at night and it is shown in the two satellite images below. It shows how economic activity, of which nighttime lights are a proxy measure, changed in South Asia between the years 1994 and 2010. We can see that night lights in 2010 cover areas that were unlit in 1994; and there is also a substantial increase in the intensity of lights in major cities over the same period. This is indicative of the underlying growth in economic activity that South Asia achieved during this period.

Based on this correlation between nighttime lights and economic activity, Pinkovskiv and Sala-i-Martin evaluate the relative quality of income data derived from household surveys and National Accounts. The intuition for their approach is that, as long as the measurement error in nighttime lights is unrelated to the measurement errors in either National Accounts or survey means, one can use night lights as a gauge to see how much weight to give National Accounts income estimates relative to household-survey income estimates in measuring true income.

The authors find that nighttime lights are much more closely correlated with GDP per capita than with survey means. This suggests, under their assumptions, that the optimal 'weights' to calculate aggregate income should be very large for national accounts and very modest for survey means.
 
1. Ahluwalia, Montek S., Nicholas G. Carter, and Hollis B. Chenery. 1979. “Growth and Poverty in Developing Countries” Journal of Development Economics, 6(3): 299–341.

2. Deaton, Angus (2005) “Measuring Poverty in a Growing World (or Measuring Growth in a Poor World)” Review of Economics and Statistics, 87(1): 1–19.

3. Maxim Pinkovskiy and Xavier Sala-i-Martin (2016) – Lights, Camera … Income! Illuminating the National Accounts-Household Surveys Debate. The Quarterly Journal of Economics (2016) 131 (2): 579-631. doi: 10.1093/qje/qjw003 Online at https://academic.oup.com/qje/article-abstract/131/2/579/2607043?redirectedFrom=fulltext
 
Their research can be found in Sala-i-Martin & Pinkovskiy - Parametric estimations of the world distribution of income. Published on VoxEU on 22 January 2010.