India has lost its unenviable position of being home to the world’s largest number of poor people, a figure determined by the International Poverty Line (IPL) of US$1.90 per day. About 70.6 million Indians live below this line, implying that about three percent of the Indian population is now below the international poverty standards. In stark contrast, the national standard of the Rangarajan Committee methodology pegs the number of poor at 363 million. An analysis of the reasons for such a massive difference in the poverty figures in the two studies will help highlight those forms of deprivation that are beyond the notion of extreme international poverty but are considered in the Rangarajan poverty ratio as necessary to be tackled by policy.

This variance in poverty measurement suggests a lack of consensus on a common methodology of poverty estimation. One might argue that poverty is an ever-evolving phenomenon and so it is difficult to determine a methodology that remains invariant over time. But it is the philosophy that underlies the methodology that needs to be sound and well-articulated. Today, there is a broad consensus on the need for a multidimensional index instead of a unidimensional one that is based on a single homogenous entity such as income or utility. The Capability Approach, as espoused by Nobel laureate Amartya Sen, has been pivotal in bringing about this shift.

Yet, there are several nuances in the discussions on Sen’s Capability Approach that are missing in the efforts to develop multidimensional poverty indices. This paper seeks to highlight these nuances and capitalise on them to build a new multidimensional poverty index. These nuances have nothing to do with the axiomatic approach adhered to by other multidimensional indices, yet the new index is expected to satisfy most of these axioms. The axiomatic framework will need to be modified slightly to be applicable to the context of the newly developed poverty index.

The objective of this paper is to propose a new multidimensional poverty index that is an improvement over other major attempts at measuring poverty through a multidimensional framework, both in the identification of the poor and the subsequent aggregation that is required to arrive at the index. The paper addresses many of the limitations that previous poverty measures have encountered. The outcome is expected to be a refined version of a poverty index that reflects ground realities and has the calibre to underpin an effective anti-poverty policy strategy.