Home / Opinion / Columns /  The worrying slowdown in India’s fight against poverty

Amid the Indian debate on what happened to poverty after 2011-12, a new estimate has been released by SBI Research (bit.ly/3OTen60). Based on consumption aggregates from the Periodic Labour Force Survey (PLFS) of 2020-21, it estimated that poverty in India declined to 17.9% in 2020-21, compared with the last available official estimate of 21.9% in 2011-12. These were also endorsed by the chairperson of the Economic Advisory Council (EAC) to the Prime Minister in a Mint column (bit.ly/3y5jQjt). These new estimates suggest an annual decline of 2.75 million in our number of poor during 2012-21 as against a drop of 20 million every year between 2004-05 and 2011-12. The data confirms conclusions of a sharp slowdown in India’s rate of poverty reduction by two other estimates by authors affiliated to the World Bank and International Monetary Fund released earlier this year. Despite the EAC’s endorsement, the latest estimates are problematic, given the non-comparability of consumption aggregates between the two surveys.

While a definitive answer to what happened to poverty will likely be available only once the results of an ongoing consumption survey are out, the broad conclusion of a setback to poverty reduction during the last decade has been made by multiple analysts. But even without methodological jugglery, there is sufficient evidence to suggest that economic conditions of most people at the bottom of the distribution have worsened. This is particularly true of the past five years, since the economy’s slowdown after 2016-17. The pandemic only added to the misery, with the latest estimates from national accounts data showing a decline in per capita real income by 0.2% per annum between 2018-19 and 2021-22. This is confirmed by PLFS findings, which offer estimates of consumption and income since 2017-18. While these are not comparable to the 2011-12 consumption estimates, they are comparable to each other.

First, per capita real income from PLFS surveys also shows a 1.1% decline per annum between 2018-19 and 2020-21. While this rate of annual decline is higher than the corresponding national account estimates, the PLFS also reports that the drop was largely due to weakening urban per capita incomes, which went down by 4.2% per year over that period, even though rural incomes per head rose at 2.7% per annum. That these are not aberrations can be seen in estimates of consumption expenditure from PLFS data, which shows per capita monthly consumption declining at 0.12% per annum between the years 2018-19 to 2020-21. Once again, it was urban areas that saw a decline in per capita consumption, at 4% per annum, as against a rise in rural per capita consumption of an annual 3.7%. PLFS data also shows that the proportion of India’s population for whom per capita income was not sufficient to meet consumption expenditure was 26% in 2018-19, which increased to 29% in 2020-21.

Our urban income and consumption declines raise questions on claims of an economic revival. While it is true that urban areas, services and informal sectors were particularly hard hit by covid disruptions, rural areas did better as the farm sector held up. But even in villages, wage workers have suffered in the last five years, with real wages showing a drop. Data on this until April 2022 confirms that both agricultural as well as non-agricultural wages fell in the last year, with farm wages declining at an annual 2% and non-farm wages at 3.8%. Over the last five years, non-agricultural real wages have declined at 1% per annum while agricultural wages remained stagnant (with growth of 0.05% per year). Given that wages are a strong proxy for poverty, multiple forms of evidence on a setback to poverty reduction are not surprising.

The decline in India’s trend of poverty reduction in the last decade is worrying. But what is also a worry is the sharper decline in urban incomes, which has implications for a demand revival in the economy, given the large role of our urban middle class in the discretionary spending needed for a recovery. While it may have contributed to reduced inequality, it also poses a problem of sustaining economic growth. Some of these trends could worsen in the wake of an inflationary spiral we are going through that will reduce real disposable incomes. Clarity on poverty may be unavailable until we have data on consumption expenditure currently being surveyed. However, the trends in evidence raise concerns on the rising vulnerability of people and sustainability of growth. These require an immediate response, irrespective of our poverty debate.

Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi

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