3 days ago
Poverty fell significantly last year. Much of it was driven by GDP growth
The Household Consumption Expenditure Survey for 2022-23 and the 2023-24 reports by the National Statistics Office (NSO) enable us to arrive at estimates of poverty and inequality for recent years. Several researchers have drawn up estimates using the 2022-23 survey. Very few have, however, used the 2023-24 survey. We look at trends in head count ratio, the depth of poverty and trends in inequality from 2011-12 to 2023-24.
The poverty lines (monthly per capita consumption expenditure) based on the methodology of the Rangarajan Committee for rural areas are Rs 972 in 2011-12, Rs. 1,837 in 2022-23 and Rs 1,940 in 2023-24. The poverty lines for urban areas are Rs1,407 in 2011-12, Rs 2,603 in 2022-23 and Rs 2,736 in 2023-24. In other words, for a family of five living in an urban area, the poverty line in 2023-24 will be Rs 13,680. The estimated total (rural and urban) poverty ratios declined from 29.5 per cent in 2011-12 to 9.5 per cent in 2022-23 and to 4.9 per cent in 2023-24. Poverty declined significantly between 2011-12 and 2023-24 (2.05 percentage points per annum), though the rate of decline was slightly less compared to the period 2004-05 to 2011-12 (2.2 percentage points per annum).
The World Bank recently released a Poverty & Equity Brief for over 100 developing countries. It says India has significantly reduced poverty over the past decade. Extreme poverty (living on less than $2.15 per day in purchasing power parity terms) declined from 16.2 per cent in 2011-12 to 2.3 per cent in 2022-23 — more than 170 million were lifted above conditions of extreme poverty in this period. The number of people below the poverty line criteria for lower-middle-income countries — $3.65 per day — fell from 61.8 per cent to 28.1 per cent.
Poverty declined significantly between 2022-23 to 2023-24. In a year, it fell from 9.5 per cent to 4.9 per cent. What can this achievement be attributed to? Poverty is determined by factors such as GDP growth, prices and safety nets. GDP growth increased from 7.6 per cent in 2022-23 to 9.2 per cent in 2023-24 — an increase of 1.6 percentage points in one year. The consumer price index (CPI) declined from 6.7 per cent in 2022-23 to 5.4 per cent in 2023-24 — a decline of 1.3 percentage points. However, food inflation increased from 6.6 per cent to 7.5 per cent during the same period. There does not seem to be significant changes in welfare programmes that make up the safety next. It appears, therefore, that GDP growth could be a proximate reason for the decline in poverty in 2023-24 as compared to that of 2022-23. However, we need to exercise caution before coming to a definite conclusion, based on a year of steep change. Another survey could confirm if this is a trend.
We also examine the depth of poverty for India by looking at poverty ratios using different cut-offs of the poverty line (PL) for the period 2011-12 to 2023-24. The first issue is whether the poverty ratios with raised poverty line cut-offs are declining as fast as those with the actual poverty line. The second is about the location of the poor — are they placed much below the poverty line or around the poverty line?
The poverty ratio (rural and urban) declined by 20 percentage points between 2011-12 and 2022-23 and by 24.6 percentage points between 2011-12 and 2023-24. Even if we raise the poverty line to 125 per cent, the reduction in poverty ratio is 28.4 percentage points between 2011-12 to 2022-23 and 34.2 percentage points between 2011-12 and 2023-24 (Table 1). Higher reduction is also true for the poverty ratio based on 115 per cent and 150 per cent of poverty line.
The head count ratio is criticised on the ground that it does not measure the 'depth' of poverty. It is seen, however, that more than 50 per cent of the poor lie between the third and fourth quarter of the poverty line. This is true for both the years — 2011-12 and 2022-23. In fact, in 2022-23, 56 per cent of the rural poor and total poor fall in this segment. In a similar vein, a large section of the non-poor are just above the poverty line — between 115 and 125 per cent of this yardstick.
Inequality in consumption also declined during the period 2011-12 to 2022-23 and from 2022-23 to 2023-24. The Gini coefficient estimated by the National Statistical office shows that inequality fell from 0.310 in 2011-12 to 0.282 in 2022-23. The decline in inequality was higher for urban areas. However, it is surprising to see that inequality in consumption declined significantly in one year — 2022-23 to 2023-24. The Gini coefficient fell from 0.282 in 2022-23 to 0.253 points — a decline of 0.029 points. On the other hand, the decline during the 11 year period 2011-12 to 2022-23 is almost similar — 0.028 points. One has to examine the significant decline in inequality in one year between 2022-23 and 2023-24.
To conclude, there has been a significant decline in poverty. The poverty ratio is now in single digits. The overall inequality in consumption expenditure has come down a bit. Significant decline in poverty in one year between 2022-23 and 2023-24 needs further confirmation. Our analysis shows that most of the poor are concentrated around the poverty line — this makes poverty more manageable.
Rangarajan is Former Chairman, Economic Advisory Council to the Prime Minister and Former Governor, Reserve Bank of India. Dev is Chairman, Institute for Development Studies, Andhra Pradesh and Former Vice Chancellor, IGIDR, Mumbai
