Poverty Falls Sharply by GDP Growth

Context

The recent Household Consumption Expenditure Survey (HCES) for 2022-23, along with the National Statistical Office (NSO) estimates for 2023-24, reveals a significant reduction in poverty across India. 

Overview of Poverty Trends in India

• Sharp Decline in Poverty Rates: The total poverty ratio in India has dropped dramatically from 29.5% in 2011-12 to 9.5% in 2022-23, and further to 4.9% in 2023-24. This represents a sustained annual decline of approximately 2 percentage points over the last decade.
• Extreme Poverty Reduction: According to the World Bank, extreme poverty (defined as living on less than $2.15 per day in purchasing power parity terms) fell from 16.2% in 2011-12 to just 2.3% in 2022-23, lifting over 170 million people out of extreme poverty.
• Lower-Middle-Income Poverty Line Progress: The share of population living below the $3.65 per day threshold (used for lower-middle-income countries) declined from 61.8% to 28.1% during the same period, reflecting a broader improvement in living standards.

Poverty Line and Consumption Expenditure

• Updated Poverty Lines: The poverty line, based on the Rangarajan Committee methodology, has been revised to reflect inflation and consumption patterns:

• Rural poverty line increased from ₹972 in 2011-12 to ₹1,837 in 2022-23 and ₹1,940 in 2023-24.

• Urban poverty line rose from ₹1,407 in 2011-12 to ₹2,603 in 2022-23 and ₹2,736 in 2023-24.

• Concentration of Poor Near Poverty Line: Analysis shows that over 50% of the poor are clustered just below the poverty threshold, between 75% and 100% of the poverty line. This concentration makes poverty more manageable and allows for more targeted policy interventions.

Drivers of Poverty Decline

• GDP Growth as the primary driver: The most proximate driver of poverty growth between 2022-23 and 2023-24, was continued GDP growth, which increased from 7.6% to 9.2%, which directly translated into increased incomes, which meant the poor had increased consumption levels.
• Inflation Trends: General consumer price inflation (CPI) declined from 6.7% to 5.4% improved real income gains. However food inflation increased from 6.6% to 7.5% which added pressure on vulnerable households that already spend their subsistence budgets on food prices.
• Limited Movement in Welfare Programmes was not a driver: There was no significant expansion of welfare schemes and safety nets, therefore it can be presumed that the declines of poverty were less of redistribution impact, and more of an impact from economic growth.

Rural-Urban Dynamics

• Rural Poverty: Rural poverty has seen a marked decline, supported by increased rural consumption and infrastructure investments. The rural poverty line nearly doubled, reflecting improved living standards and consumption patterns.
• Urban Poverty
  Urban poverty lines also increased, driven by better wages and economic opportunities. Urban areas have shown a faster reduction in inequality, contributing significantly to overall poverty reduction.
• Narrowing Rural-Urban Gap
  Extreme poverty in rural areas fell from 18.4% to 2.8%, and in urban areas from 10.7% to 1.1%, narrowing the rural-urban poverty gap substantially.

Implications and Challenges

• The Manageability of Poverty: Many of the poor households are extremely close to the poverty line. If targeted, direct benefit transfers or schemes that transfer benefits to poor households in the form of subsidized interventions would take more of them out of poverty and help people manage in extreme cases. 
• Vulnerability to Shocks: Poor households clustered in close proximity to the poverty line also make it somewhat easier to highlight the vulnerability of poor households to shocks at all sorts of levels and contexts of health crises (especially the levels of inflation and food inflation) also affects shocking in recent years.
• Structure of Data and Gaps in Coverage: All surveys capture a lot of diversity of people like neat and tidy categories. Some survey data may miss segments of informal sector workers or migrants, who are mostly located in urban slums and cities that are often not captured by surveys. This means that both categories would need their schemes (income, health, housing) and that would  necessitate inclusion – so it is important to highlight from the outset, the need to include them in data collection and social protection schemes to achieve urban poverty alleviation goals. 
• Regional Disparity between states: it must be pointed out that some states are much more poor than the national context. Even among states like Bihar, Jharkhand and Odisha, these states would need strategies and schemes governing their context – particularly with respect to what the baseline country’s risk, that is, to application of any forms of policies. 

Way Forward

• Strengthening Safety Nets: Expanding targeted welfare programs such as PM-GKAY (food subsidy) and direct benefit transfers can protect the near-poor from falling back into poverty.
• Focus on Rural Employment: Enhancing schemes like MGNREGA with climate-resilient job creation can sustain rural income growth and reduce poverty vulnerability.
• Urban Social Protection:  Developing comprehensive urban safety nets for migrants and informal workers is critical to addressing urban poverty challenges.
• Continuous Monitoring and Data Improvement Institutionalizing annual multidimensional poverty audits and improving survey methodologies will help track progress and inform policy effectively. 

Conclusion

The Household Consumption Expenditure Survey 2022-23 and subsequent data for 2023-24 underscore a remarkable achievement in India’s fight against poverty, with the poverty rate falling to historic lows. This progress is largely attributed to sustained GDP growth, moderate inflation, and improved consumption patterns. However, challenges remain in addressing regional disparities, food inflation, and vulnerable populations near the poverty line. Continued focus on inclusive growth, targeted welfare, and robust data systems will be essential to sustain and deepen poverty reduction in India.

Source: The Indian Express

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