India’s development landscape has undergone a structural shift

For the first time in Indian history, inequality has declined in both rural and urban areas.
For the first time in Indian history, inequality has declined in both rural and urban areas.

Summary

  • The latest consumption survey’s findings show pro-poor growth and a large decline in inequality.

It has been a wait of 11 long years. One of the most important parameters related to development and progress in a large democratic country like India is the trend in absolute poverty. The government has just released a Fact Sheet pertaining to the Household Consumption Expenditure Survey (HCES) for the 2022-23 agricultural year (actually August 2022-July 2023; shorturl.at/lLN56). The full report is to be released shortly, as well as unit-level data.

Fortunately, the Fact Sheet has enough information to derive an estimate of poverty for a given poverty line. A poverty line is a level of per capita expenditure below which a person is deemed poor. The World Bank hosts the ‘official’ repository of poverty data for all countries in the world and regularly updates its information on all official surveys of consumer expenditure, as well as some private surveys (pip.worldbank.org).

Traditionally, the Planning Commission had the mandate to construct estimates of poverty in India. The Niti Aayog no longer has that mandate. Further, the 2017-18 HCES data was not released by the government. The reason: bad quality of data. (The 2017-18 survey had not just bad quality data, but also set a world record for bad quality. Nevertheless, the data should have been released, and hopefully will happen soon.) The non-release of HCES 2017-18 meant that it was ‘open season’ for all and sundry to provide estimates of a very important political, ideological and economic variable called poverty.

It is no surprise that when the Fact Sheet was released, that open season continued, with estimates ranging from 5% to 20% poor, going by the World Bank’s purchasing power parity (PPP)-based $1.9 poverty line (this was ‘unofficially’ based on the Tendulkar poverty line). However, there is little reason for there to be such a wide range of estimates. Hence, a step-by-step approach to estimate poverty from survey reports is outlined here.

The Fact Sheet has mean monthly per capita expenditure (MPCE) levels by fractile classes separately for rural and urban areas. In my 2002 book, Imagine There’s No Country, I used the Nanak Kakwani 1980 Income Inequality and Poverty procedure (now widely used) to derive percentile distributions (and inequality Gini estimates) from quintile distributions for more than 180 countries from 1950 to 2000. The same procedure has been used to generate the rural and urban distributions for the 2022-23 HCES.

To generate poverty estimates from that, all we need are rural and urban poverty lines for 2011-12 and rural and urban inflation from 2011-12 to 2022-23. First, the poverty lines. For the base-year 2011-12, the World Bank’s PPP $1.9 per capita per month poverty lines for rural and urban India were 789 and 967 respectively. The Fact sheet indicates that rural and urban inflation from 2011-12 to 2022-23 recorded compounded annual rates of 5.7% and 5.6%, respectively. Hence, rural and urban poverty lines for the HCES 2022-23 are 1,452 and 1,752 per capita per month, respectively.

What are the results on poverty? A historic fast-paced decline from 12.2% poor in 2011-12 to only 2% now. This is according to the World Bank’s extreme poverty line of PPP $1.9 per capita per day. This implies that extreme poverty has almost been eliminated in India, especially since this level is obtained without adding poverty declines thanks to free food, among other things.

I have long argued for a higher poverty line in India, one that befits the improved status of the population. Data indicates that it should be even higher than the 68% higher PPP $3.2 poverty line. By this, in 2011-12, more than half our population (53.6%) was poor; in 2022-23, poverty reduced to just 21% (25% in rural areas and 12% in urban areas). The aggregate decline in PPP $3.2 poverty is thus more than 30 percentage points in a short space of 11 years. This fast pace of poverty decline has never been observed in India before, and is rare in the rest of the world.

More results. For the first time in Indian history, inequality has declined in both rural and urban areas. This is a very rare event even elsewhere, and points to strong redistribution under the growth policies of the Narendra Modi government. The Gini coefficient (multiplied by 100) for rural India has declined from 28.7 in 2011-12 to 27.0 in 2022-23; urban inequality fell sharply from 36.7 to 31.9.

It is rarer still to have inequality declines in the context of strong growth. Rural real per capita consumption growth was at a 3.1% annual rate over 11 years (a cumulative 40%) and per capita urban growth at 2.6% annually (a cumulative 33%). It is this strong growth and large decline in inequality that make India’s recent development so remarkably pro-poor and unusual.

It is both tragic and amusing to note that respected scholars in India (and some abroad) were opining (as recently as last week) that poverty had stayed at approximately the same level as 11 years ago. The ‘reason’ for this disorientation is discussed in detail in my forthcoming book How We Vote (published by Juggernaut and out in early April).

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