LUCKNOW, India—Alimunisha's home is a 150-square-foot mud floor with a roof of plastic tarp held up by bamboo sticks. The beds are burlap potato sacks. There's no running water, electricity or toilet. She can afford to feed her five children one meal a day on the income her husband earns selling traditional drums.

But according to the Indian government, Ms. Alimunisha, who goes by only one name, isn't living in poverty.

That means her family doesn't qualify for aid aimed at the poorest Indians, including a program that provides free housing and subsidies that would cut her food costs by two-thirds.

India, one of the world's fastest growing economies, is now embarking on a major reassessment of poverty levels. The review will determine how many struggling people across the world's second-most populous nation, from urban slum dwellers like Ms. Alimunisha to landless farm laborers, will be counted among the ranks of the official poor and get government handouts. At a stroke, tens of millions of people could flood onto the welfare rolls.

Generating a reliable list of poor households has become a top priority for the government of Prime Minister Manmohan Singh, which has pledged to spread the benefits of India's rapid growth to the aam aadmi, or common man. The government launched its review of poverty as it drafts legislation to give the poorest Indians a right to subsidized food-grains.