What is poverty line?
Poverty line is a construct essential to measure how poor a country is, which is useful in making policies for
development. Behind statements like "40 % Indians are poor" there is an implicit poverty line.
A common way to define the poverty line is a broad income-based level, say, 60 per cent of a country’s
average income per head.

The average Indian earns about $ 440, or Re 19800 per year. Going by the 60 % of income rule, a poor Indian
has an annual income of Rs 11800 or Rs 990 a month. We draw a poverty line by calculating the `minimum’
cost of living that can sustain people. For very poor countries like ours, this boils down to a nutritional
requirement: the cost of minimum calories needed to keep people alive. This looks like a fairly foolproof
method, but has some built in glitches. For example, calorie needs vary across genders and age. A rough
average is 3,000 calories daily for working men; about 2,900 for working women.

Is a roll call enough to count the poor?
The simplest measure of poverty is the head count ratio: people below the poverty line, divided by the total
population. This is simply the proportion of the poor in total population. The HCR is easy to understand, but
making policy on its basis leads to trouble. That’s because the HCR makes no distinction between people just
below the poverty line, and those poorer by a longer margin.

Consequently, the government can show large poverty declines by spending just enough on the least-poor to
drag them above the poverty line, spending nothing on the poorer folk. Despite that, the HCR is India’s official
method to estimate poverty.

Can we go beyond the roll call?
Certainly. Another index, the Income Gap Ratio (IGR), gives a better idea of how deep poverty is entrenched.
IGR measures how far below the poverty line poor people actually are, divided by the total expenditure by
them. That shows how poor the average poor person is, with respect to all poor people. A government that
goes by this measure to make policy will target the `average poor’ person, not the `least poor’ one, as is the
danger with the HCR.

That’s why the IGR is a more useful measure than a simple roll call. Now, if you took something away from
someone who is acutely poor and gave it to someone less poor, it is obvious that the degree of poverty will
rise. But neither HCR nor IGR can account for this. Neither reflects changes in poverty brought about by
transfers between the poor.