"The World Bank started making international comparisons of poverty only about two decades back. For obvious reasons of convenience, it developed two simple notions of poverty. The lower poverty line was set at $1 a day per capita. Those below it were considered to be 'the poorest of the poor.' The upper poverty line was set at $2 a day. Those living on $1 to 2 a day were still poor, but not as bad off.
However, there was a problem. It was realized that $1 goes much farther in purchasing necessary items of consumption in a poor country than in a rich one. To make purchasing power across countries comparable, economists developed what is known as the PPP (purchasing power parity) index. Taking into account the lower cost of living in impoverished countries, a conversion factor is now applied to market exchange rates to calculate what is minimally necessary to survive there. Using World Bank numbers, applying this conversion factor for India effectively means that if you survive on 1 PPP dollar a day in that country, it is equivalent to being given 20 cents in your hand in the U.S."
By Aseem Shrivastava from Justice for the Poor - Participants' Guide
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