Assessing Indian poverty: Bleak House or Great Expectations?

The estimated proportion of India’s population in multidimensional poverty declined from 24.85% to 14.96% between 2015-16 and 2019-21.
The estimated proportion of India’s population in multidimensional poverty declined from 24.85% to 14.96% between 2015-16 and 2019-21.

Summary

There has been a remarkable reduction in multidimensional poverty and also levels of inequality on key selected measures

The estimation of poverty (or prosperity) has received considerable institutional and academic attention. In India, the pioneering work was perhaps Dadabhai Naoroji’s Poverty and unBritish Rule in India. Subsequently, several experts [Dandekar & Rath (1971); Alagh (1979); Lakdawala (1993); Tendulkar (2009) et al] have all attempted to answer the question of the numbers in poverty.

Without routinely reported direct figures to go by, poverty estimates have typically been constructed based on surveys. However, a simple headcount of the poor, which measures incomes and/or consumption, is unlikely to capture the complete picture. This is because several factors, such as ownership of assets, access to welfare schemes/services and quality of social services like education and health, have a bearing on the quality of life of an individual. Further, it is possible that gains in the quality of life of the ‘poor’ are entirely missed unless the Rubicon of the poverty line is crossed. That is, poverty has traditionally been measured against a defined standard/level. However, the intensity of poverty can vary even within that standard, which itself is a subject of much debate.

Graphic: Mint
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Graphic: Mint

Based on the Alkire-Foster methodology, the recently released Niti Aayog Multidimensional Poverty Index (MPI) seeks to address this by synthesizing the poverty headcount ratio with depth of poverty as measured by an average deprivation score, which captures levels of it experienced by multi-dimensionally ‘poor’ individuals. The Index uses three dimensions—Health, Education and Standard of Living—across 12 indicators: access to drinking water, electricity, maternal health, school attendance, etc. The estimated proportion of India’s population in multidimensional poverty declined from 24.85% to 14.96% between 2015-16 and 2019-21. This decline is particularly sharp in rural areas, where the proportion reduced from 32.59% in 2015-16 to 19.28% in 2019-21. Overall, this reduction indicates that, at the 2021 projected population levels, about 135.5 million persons have exited poverty between 2015-16 and 2019-21.

At the same time, intensity of poverty reduced from 47.14% to 44.39%. Here also, the decline was sharper in rural areas. This reading indicates that along with absolute numbers, average deprivation among those in multidimensional poverty also reduced. At this pace, the report predicts that India is well on course to achieve the Sustainable Development Goal target 1.2, relating to the reduction of poverty by half, much ahead of the 2030 target.

The report also shows that poverty reduction has been noticed across all states and Union territories. The steepest declines were seen in Bihar (-18.13%), Madhya Pradesh (-15.94%), Uttar Pradesh (-14.75%) and Odisha (-13.65). The two accompanying figures visualize multi-dimensional poverty at the district level, estimated for 2015-16 and 2019-21. The green areas represent areas with lower MPI scores, while reds indicate higher MPI. It may be seen that the reds and yellows have not only reduced, but deep reds (of very high MPI) have all but vanished. Further, green coverage has increased substantially, and these greens have become deeper (indicating a decrease in MPI).

To probe poverty further, we look at asset ownership. This forms a robust indicator of household income, especially for those at the bottom of the income distribution, the presumption being that assets will be acquired once basic needs are largely met. Since assets provide a layer of security and enhance labour productivity, changes in asset ownership are a useful measure of poverty levels.

We use the Key Indicators of Debt and Investment in India, 2013, and the All India Debt & Investment Survey, 2019, of the ministry of statistics and programme implementation (MoSPI) to see the movement in two key metrics for assets: the average value of assets and reports on fixed capital expenditure. For both metrics, we focus on the bottom decile class (bottom 10% of the sample) and compare it against the top decile class (top 10% of the sample) for context. Between 2013 and 2018, the average value of assets held by the lowest decile grew more than 63% in rural areas and more than 587% in urban areas. Similarly, between 2013 and 2019, fixed capital expenditure in rural areas increased by about 42% and in urban areas by more than 316%. This indicates an improvement in the conditions of the bottom 10% of the population, since satisfying basic needs typically precedes acquiring fixed assets. In both average asset values and capital expenditures, the bottom decile, taken as a percentage of the top decile, shows a significant improvement. This could be a marker of reducing inequality in those metrics.

As the economy grows and we look to reap the benefits of a demographic dividend in the coming decades, the lives of the Indian populace look remarkably better compared to a decade back. Social indicators—health, education and standard of living—have all shown significant improvement. This is true for both rural and urban areas.

The last five years, from 2015-16 to 2019-21, when about 135 million Indians escaped poverty, corresponds with a period of enhanced access to electricity, percolation of improved drinking water, sanitation facilities and coverage of health insurance schemes, access to cleaner domestic fuels and improving rural productivity. In many ways, this is a vindication of the government’s social sector initiatives such as Pradhan Mantri Sahaj Bijli Har Ghar Yojana, Jal Jeevan Mission, Ayushman Bharat Pradhan Mantri–Jan Arogya Yojana, Pradhan Mantri Ujjwala Yojana, Deendayal Antyodaya Yojana–National Rural Livelihood Mission and the Deen Dayal Upadhyaya Grameen Kaushalya Yojana.

The substantial reduction in numbers and intensity of multidimensional poverty as well as in the levels of inequality on selected key measures is a remarkable achievement. As our economy grows, poverty levels will continue to recede further in a virtuous cycle. In the words of Martin Chuzzlewit, perhaps the last of Charles Dickens’ picaresque characters, “Change begets change. Nothing propagates so fast"!

These are the authors’ personal views.

V. Anantha Nageswaran & Devi Prasad Misra are, respectively, chief economic advisor to the Government of India and an Indian Revenue Service (customs and indirect taxes) officer.

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