Question

Which one of the following is a possible reason for underestimation of the official poverty ratio in India?

• A. Changes in the World Bank’s definition of poverty
• B. Price indices used in the official poverty estimation may not be adequately capturing the actual increase in the cost of living over the years
• C. Existence of identical poverty lines for all the states and union territories
• D. Existence of identical poverty lines for rural and urban areas

Hint:

Always relate poverty estimation issues to inflation measurement accuracy — if price indices lag real inflation, poverty appears lower than it truly is.

Answer 1

The Correct Option is B

Step 1: Understanding the poverty ratio.
The poverty ratio represents the percentage of population living below the poverty line, estimated based on consumption expenditure and price indices.
Step 2: Possible reason for underestimation.
If the price indices used in poverty estimation fail to fully capture the actual rise in cost of living, the poverty line will be set too low, underestimating the number of poor.
Step 3: Eliminate incorrect options.
(A) Incorrect — changes in the World Bank definition do not affect India’s domestic measure.
(C) Incorrect — poverty lines differ across states.
(D) Incorrect — rural and urban lines are separately estimated.

Step 4: Conclusion.
Thus, option (B) is correct as it directly explains the underestimation of the official poverty ratio.