Prices and Poverty in India, 1987-2000

Abstract

In India, as in other countries, indexes of consumer prices perform many important functions. Millions of workers have their wages indexed to some measure of the price level. Just as important is the issue that is our main focus here, the estimation of poverty. Indian poverty rates are defined as the fractions of people living in households whose real per capita total expenditure falls below the poverty line. Data on total expenditures are collected by the National Sample Survey (NSS) in money terms so that, for each new round of data, the real poverty line must be converted to current rupees by multiplying by an index of prices. Inaccuracy in the estimation of the index, for example overestimation of the price increase relative to the base, will result in corresponding inaccuracy of the poverty estimates, for example an underestimation in the rate of poverty reduction. At a time when the data show historically high rates of GDP growth without much reduction in poverty, especially rural poverty, it is important to establish the accuracy of the price and poverty calculations.

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