Is Poverty in India Really on the Decline? Analyzing the Recent Claims and Controversies.

In recent reports, there’s been widespread discussion about the significant reduction of poverty levels in India, especially in rural areas. A recent State Bank of India (SBI) report suggests that the poverty rate in India has dropped below 5%, with rural poverty falling to an impressive 4.86% in FY24. But, are these claims truly accurate? Economists have raised questions about the methodology behind these findings. Let’s dive deeper into the story.

The Good News – Poverty on the Decline The State Bank of India (SBI) highlights a remarkable reduction in poverty across rural and urban India.

• Rural poverty has sharply declined to 4.86% in FY24 from 7.2% in FY23 and 25.7% in FY12.
• Urban poverty dropped to 4.09% in FY24, down from 13.7% in FY12.

The SBI attributes this improvement to:

• Enhanced physical infrastructure: Building better roads, electricity, and connectivity in rural areas.
• Higher consumption growth in the bottom fractile: More spending power for the lower-income groups.
• Direct Benefit Transfers (DBTs): Financial assistance directly to citizens, helping improve economic security.

Prime Minister Narendra Modi even recently claimed that over 23 crore people have come out of poverty in the last decade.

The Critics – Methodological Concerns However, not everyone agrees with the SBI’s conclusions. Several economists have raised concerns about the methodology behind the poverty estimates.

Key Points of Criticism:

1. Flawed Poverty Line: The SBI report uses a poverty line developed by the Tendulkar Committee in 2011. Critics argue that this line is outdated and too low, essentially setting a “destitutional line” instead of a true poverty line.

Rural poverty line in FY24 is set at ?1,632 per month (?55/day)

Urban poverty line is ?1,944 (?65/day)

2. Outdated Methodology:

• Economists like R. Ramakumar argue that the Tendulkar line doesn’t account for changes in household consumption over time. For instance, a typical consumption basket (the items people spend money on) has changed significantly over the years.
• Pronob Sen, former Chief Statistician, also criticized using the same poverty lines for more than a decade without considering the evolving standard of living.

3. Changes in Survey Methodology:

The report uses new methods in the Household Consumption Expenditure Survey (HCES). A new recall system (Mixed Reference Period or MMRP) asks people to report spending differently for items over varying time periods, which can distort comparisons with previous surveys.

What Does All This Mean? While poverty is undoubtedly declining, the question remains: By how much?

• The Tendulkar poverty line has been criticized for being outdated, which means the actual levels of poverty might be higher than the official numbers suggest.
• The MMRP method used in HCES might not allow for a consistent comparison with previous data, complicating the accuracy of poverty estimates.

What Does the Future Hold?

Despite criticisms, the general trend shows improvement, and experts believe poverty will likely continue to decrease in the coming years. However, it is crucial to recognize the limitations in data and methodology to ensure that future estimates are more reliable and reflective of changing consumption patterns. With further updates (like the 2021 Census), we might get a clearer picture of poverty reduction in India.

Explanation of Key Terms:

• Poverty Line: A threshold that separates people who are considered poor from those who are not. It usually defines the minimum income needed to meet basic needs like food, shelter, and clothing.
• Tendulkar Committee: A committee that set India’s poverty line back in 2011, which has faced criticism for being too low to accurately reflect modern poverty.
• Direct Benefit Transfers (DBTs): Government transfers of money or subsidies directly to the people, bypassing intermediaries to reduce corruption and ensure more efficient distribution.
• Household Consumption Expenditure Survey (HCES): A survey that tracks the consumption habits of households, which is used to assess poverty levels and other economic indicators.
• Mixed Reference Period (MRP) & Mixed Reference Period (MMRP): Different methods of asking respondents about their spending. The MRP asks for spending on some items in the past year, while MMRP uses multiple timeframes to measure different goods.

While the drop in poverty levels is a sign of economic progress, we need to critically analyze the data and methods to ensure that the true extent of poverty reduction is captured. What’s your take on these numbers?

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