One hundred and thirty-five million of “my fellow poor brothers and sisters have broken free from the chains of Poverty and entered the new middle class” during his first five-year term, Prime Minister  Narendra Modi declared in his Independence Day address to the nation from the Red Fort. “There can be no greater satisfaction in life than this.”

Indeed, such a large number of people rising above poverty is cause for celebration. Not all of them may have achieved middle class status; most might be hovering on the perimeters of poverty. But a politician can be given latitude in speech. And the poverty reduction happened during a six-, not a five-year period, from 2015-16 to 2019-21, which includes 2020-21, when the pandemic hit the poor particularly hard.

The prime minister made the assertion based on NITI Aayog’s National Multidimensional Poverty Index, an “indigenised index” as Aayog vice-chairman Suman Bery put it, developed in collaboration with the Oxford Poverty and Human Development Initiative (OPHI) and the United Nations Development Programme (UNDP). It uses data from the National Health and Family Survey-5 conducted by the health ministry’s International Institute for Population Sciences. Tangentially, its director and senior professor, K.S. James, who was involved in the survey, was suspended in July allegedly over “hiring regularities” but actually according to The Wire, for datasets unpalatable to the government.

The NITI Aayog index has a set of proxies to measure poverty. Unlike monetary measures like daily or monthly consumption expenditure on a basket of essential goods and services, the index is said to capture both the extent and depth of poverty. It uses 12 parameters to do so. These are grouped under three categories: education, health and standard of living, each of which has equal, one-third, weightage.

A household would be educationally deprived, according to the index, if no family member aged 10 or above has completed six years of schooling, and any child of school-going age is not attending school up to Class VIII age.

An undernourished child (under five years), woman (under 49 years) or man (under 54 years); death of a person aged up to 18 years in the preceding five years; or a pregnant woman not getting at least four ante-natal care visits or not assisted during her last childbirth in the preceding five years would render the family deprived health-wise.

There are seven parameters to assess poor standard of living: access to “improved” water and sanitation, use of cow dung patties, coal or biomass for cooking; a shack for a house; lack of assets like radio, TV or phone; and no electricity or a bank account. If a family tots up a score of one-third or more on the above counts, it would be considered as living in poverty.

The index mimics the UNDP’s Multidimensional Poverty Index (MPI), except that the latter has 10 parameters instead of 12. It does not include bank accounts in standard of living, or assisted childbirth or ante-natal care visits under health. Unlike NITI Aayog’s index which excludes old persons, the UNDP index considers a family to be deprived health-wise if any adult under the age of 70 or any child for whom there is nutritional information is undernourished.

Pronab Sen, former chief statistician of India, who is regarded as an expert on poverty measurement, faults the nomenclature of NITI Aayog’s MDP index. He says it should be called a multi-dimensional deprivation index, and not a poverty index.

“Poverty is intrinsically an income concept,” he says. It measures current status unlike deprivations, which have accumulated over time. It’s also possible for a person to be asset rich and income poor. Like retired persons who may have a decent house and access to sanitation and clean water but not enough to live on either because they don’t have a pension or adequate savings.

A person may have enough to eat now but might be weak and anaemic because of undernourishment in childhood, resulting in low weight or stunting. A  family of agricultural labourers might have built a brick house with past savings; it might have electricity, access to clean water and sanitation and they might own a mobile phone and bank account but not have enough to eat because of low wages or insufficient paid work opportunities.

NITI Aayog’s index recognises these possibilities and regards poverty as caused by not one parameter but a set of deprivations that add up to a score of at least a third.

Poverty is indeed multi-dimensional. Lack of capabilities can cause it. A poverty line approach based on consumption expenditure has inherent limitations, the Standing Committee on Finance observed at a sitting in May 2010. It does not capture important aspects of the real living conditions of people. The committee cited Assam, Andhra Pradesh and Jammu & Kashmir whose high malnourishment rates did not square with low numbers of people in poverty.

The World Bank has addressed this issue by including monetary poverty along with lack of education and access to basic infrastructure in its Multidimensional Poverty Measure (MPM). A person is monetarily poor if they earn less than $2.15 a day—the New International Poverty Line as per 2017 purchasing power parity. Monetary poverty, in its index, has a weight of one-third. This is not included in NITI Aayog’s index.

According to the World Bank index, a family is educationally deprived if no adult of school grade IX age or above has completed primary education and at least one child of school-going age in the family is not enrolled in school. Lack of access to basic infrastructure is defined as no electricity and no access to “limited-standard” drinking water and sanitation.

The World Bank says monetary poverty is strongly correlated to deprivations in other domains, but the correlation is not perfect. Its Poverty and Shared Prosperity 2022 report shows that four out of 10 multidimensionally poor persons (39%) are not poor monetarily. They are poor on non-monetary dimensions alone. A country’s MPM is at least as high or higher than monetary poverty, it says, reflecting the additional role of non-monetary dimensions in poverty and their importance to general well-being.

The World Bank published its fifth MPM in April 2023. India does not figure in any of the five surveys because the National Sample Survey Organisation (NSSO) conducted the last household consumption survey—which is the basis for estimating monetary poverty—in 2011-12. No official poverty estimates have been released since then. The NSSO survey of consumer expenditure conducted in 2017-18 has not been released reportedly because the results don’t flatter the government. The results of the last round conducted in 2022-23 are awaited.

India has always measured poverty according to daily or monthly expenditure needed for a minimum standard of living. It started with Dadabhai Naoroji in 1867-68. In 1971, economists V.M. Dandekar and N. Rath were the first to fix the minimum monthly consumption expenditure necessary for a daily calorie intake of 2,250 per day for rural and urban areas. They said it was ₹15 per person per month in rural areas and ₹22.50 per person per month in urban areas. These measures were refined by the Y.K. Alagh Committee in 1979 and the Lakdawala Expert Group in 1993. The expert group of Suresh Tendulkar in 2009 and that of former Reserve Bank Governor C. Rangarajan in 2014 also examined the issue. But they all used consumption expenditure as the criterion.

Deprivations based on education and health are different from those caused by lack of purchasing power, Rangarajan and his colleague in the 2014 Expert Group, S. Mahendra Dev, wrote in an article in The Hindu on August 16 this year. Multi-dimensional measures are an add-on, they said, which can complement but not be a substitute for consumption expenditures or incomes.

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