The Great Indian Poverty Debate

Two recent reports released  have estimated that India’s poverty fell down to below 5 per cent in 2023-24.

About The Reports

• State Bank of India (SBI) Report: 
  • Methodology: The SBI team has used household expenditure distribution based on the latest 2023-24 survey using the modified mixed reference period (MMRP). 
  • National Poverty rates are now between 4-4.5% nationally,
    • 4.86% for rural areas and 4.09% for urban areas in FY24.
  • Poverty Line: The poverty line stands at Rs 1,632 for rural areas and Rs 1,944 for urban areas
    • It is adjusted for decadal inflation and the imputation factor in the poverty line set by the Suresh Tendulkar Committee in 2011.
  • Decline in Rural- Urban Gap: A decline Urban- Rural gap has been observed.
    • It is attributed to the identified urban areas in the survey in 2023-24 remaining the same as in 2011-12. 
  • Added Dimensions: 
    • Three monthly visits to households, instead of one, to collect the data. 
    • Free Provisions Included: Free provision of items like laptop/personal computers, tablet, mobile handset, bicycle, motorcycle/scooty, clothing (school uniform), footwear (school shoes, etc), besides free food items are  included.
• Household Consumption Expenditure Survey:
  • Methodology: HCES uses a modified mixed reference period (MMRP) method.
    • Recall Period: The recall period for expenditure on items,
      • Edible Items: For oil, egg, meat, milk, vegetables and fruits, recall period is ‘last 7 days’. 
      • For items like clothing, bedding, footwear, education, durable goods and medical, it is ‘last 365 days’.
      • Other Items: The recall period is ‘last 30 days’.
  • Rural Poverty: It dropped to 4.86% in FY24, a sharp decline from 7.2% in FY23 and 25.7% in FY12.
  • Urban Poverty: It saw a fall to 4.09% in FY24, down from 4.6% in FY23 and 13.7% in FY12.
• Cause of Decline: Rural poverty declined due to,
  • Higher consumption growth among the bottom 5% of the population. 
  • Rural Mobility: Improvement in physical infrastructure leading to increased rural mobility shrinking both horizontal (between rural and urban) and the vertical income gap (within rural income classes)
  • Endogenous Rural Expenditure: Around 30 per cent of the rural monthly per capita expenditure (MPCE) are endogenous to the rural ecosystem due to initiatives like DBT transfers,augmenting farmer’s income, improving the rural livelihood significantly
• Shortcoming in Estimation:
  • Destitutional Line: The SBI report is based on the Tendulkar poverty line which is said to be flawed as it does not account for changes in the consumption basket of households ending up using a very low poverty line to obtain a lower estimate of poverty
    • The poverty lines used for 2023-24 in the SBI report amount to just Rs 55 per day in rural areas and Rs 65 per day for urban areas. 
  • Sampling Changes: Disproportionate representation has been provided to affluent sections of the society resulting in recording of higher consumption expenditure distorting the estimates
    • Example: The second stage stratum classification is now made on the basis of land for rural areas and car ownership for urban areas unlike previous exercises where the divisions were made based on household status and household activity for rural areas and monthly per-capita income for urban areas.
  • The Unemployment Picture: Falling job growth and real wages with higher inflation will practically lead to increase in poverty.
    • Approximately 190 million workers (2021-22) in India are earning just up to Rs 100 per day (in real terms at 2010 prices) which can be categorised as “absolutely poor”compared to just 106.1 million workers in 2011-12.
  • Fairness: The Poverty estimates using outdated norms and not accounting for the  changes in consumption basket and the difference in the methodology of earlier consumption surveys and current HCES does not exude confidence in the fairness of the process. 
  • Rural Poverty Underestimated: Rural poverty is likely to be higher than estimated if the  urbanised parts of rural areas or the potential ‘census towns’ have been included in the urban frame of HCES.
  • Comparison Difficulties: Bringing changes in dimensions and methodologies will severely impact comparisons with the past surveys. 
    • Example: The MMRP 2022-23 and 2023-24 method estimates higher household expenditure while the MRP data, available for the estimate of 2011-12 uses  a markedly lower poverty line.

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