India's poverty rate has significantly dropped from nearly 22% in 2011-12 to less than 5% in 2023-24, with a negligible prevalence of extreme poverty and a narrowing urban-rural disparity, according to researchers from the State Bank of India.
The sharp decline in the ratio is on account of higher consumption growth. (Representational)
Referring to the findings of the Household Consumption Expenditure Survey (HCES) 2023-24, released last week, Soumya Kanti Ghosh, the SBI group's chief economic adviser, highlighted that rural poverty decreased from 25.7% in 2011-12 to 7.2% in 2022-23 and further to 4.86% in 2023-24. Similarly, urban poverty fell from 4.6% in 2022-23 to 4.09% in 2023-24.
“At an aggregate level, we believe poverty rates in India could now be in the range of 4-4.5% with almost minimal existence of extreme poverty,” noted Ghosh. The poverty rate was 21.9% in 2011-12, compared to 37.2% in 2004-05.
These findings align with a statement made by Niti Aayog CEO BVR Subrahmanyam in February of this year, after the release of the HCES 2022-23 results, asserting that India's population of poor individuals has already fallen below 5%. This assessment was based on extrapolating the monetary poverty threshold set by the Tendulkar Committee (2009). According to SBI Research's analysis of the HCES 2023-24 data, the new poverty line has been determined at a monthly per capita consumption expenditure (MPCE) of ₹1,632 for rural areas and ₹1,944 for urban areas, compared to ₹816 and ₹1,000, respectively, in 2011-12.
Nevertheless, the recent years' negative growth in real wages for rural occupations seems inconsistent with these estimates.
The HCES 2023-24 data indicates that the lowest income group in rural areas (0-5%) recorded an MPCE of ₹1,677 in 2023-24, a 22% increase from ₹1,373 in 2022-23. In urban areas, the corresponding MPCE rose to ₹2,376 in 2023-24, reflecting an 18.7% increase from ₹2,001 in the previous year. Additionally, consumption inequality declined in both rural and urban areas in 2023-24 compared to 2022-23. The Gini coefficient for rural areas decreased from 0.27 to 0.24, while for urban areas, it fell from 0.31 to 0.28.
“Enhanced physical infrastructure is scripting a new story in rural mobility. One of the reasons for the increasingly shrinking horizontal income gap between rural and urban and the vertical income gap within rural income classes,” said the SBI Research report. The gap between rural and urban MPCEs has now decreased to 69.7%, down from 88.2% in 2009-10, reflecting a rapid decline. This shift is primarily attributed to government initiatives, such as DBT transfers, rural infrastructure development, increased farmer income, and significant improvements in rural livelihoods.
On inflation, the SBI report indicated that, based on the HCES data and revised weights in the CPI index, retail inflation in November would have been 5%, compared to 5.5%. From April to November, CPI inflation, with the updated weights, would have averaged 4.6%, down from the current 4.9%.
The HCES 2023-24 data revealed that the urban-rural MPCE gap narrowed to 70% in 2023-24 from 84% in 2011-12. In 2022-23, the gap was 71%, confirming ongoing consumption growth momentum in rural areas, as noted in a release from the statistics ministry.
The survey showed that, in nominal terms, the average MPCE (excluding imputation) for 2023-24 rose by approximately 10% in rural areas, reaching Rs 4,247, and by 8% in urban areas, reaching Rs 7,078, compared to 2022-23.
The HCES for 2022-23 had indicated that households' MPCE had more than doubled over the 11-year period from 2011-12 to 2022-23. During this time, the urban-rural disparity shrank by 13 percentage points, and the proportion of food in the consumption basket decreased (from 53% to 47%). Additionally, there was a significant decline in the share of cereals in the rural consumption basket, dropping from 10.7% to 6.9%.
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