A Behaviour-based Approach to the Estimation of Poverty in India

Since the late 1970s, the price indices underlying the poverty lines in India have been updated using aggregate indices. Widespread criticism of these indices led to the adoption of a new official methodology in 2011 based on unit values from consumption survey data. We propose an alternative approach that identifies poverty from consumer behaviour, based on the notion that equally poor households spend the same proportion of their incomes on food. Compared with official estimates, we find higher levels of poverty in eastern India, and generally, smaller reductions in poverty from 2005 to 2010. Our poverty numbers are validated by the calorie composition of households around the poverty lines and self-reported hunger.