I remember participating in the UN painting competition where the subject I chose was “poverty.” It was a remarkable choice of topic, not easy to depict for someone like me, just 8 years old then. Must say, it was an enriching experience as an artist.

We all see poverty around us, many might have experienced it as well, in some form or other. There is so much talk around poverty eradication, but it has always appeared as a distant dream. Well, that is, until this Brookings commentary came out last week.

However, let us not forget – poverty is a nuanced topic, just like wealth.

There is so much jargon – multidimensional poverty, equivalence scale, dependency ratio, chronic poverty, capability deprivation and what not. Poverty research is seldom not-so-complex.

But then, it is extremely useful to map and measure poverty. Brookings commentary by Surjit Bhalla and Karan Bhasin does that exactly, providing a refreshing perspective on poverty elimination in India. It says, and I quote:

“High growth and large decline in inequality have combined to eliminate poverty in India for the PPP$1.9 poverty line. (Here we use the PPP$ 1.9 line [2011 prices] rather than the PPP$ 2.15 line at 2017 prices because the former closely corresponds to the official India Tendulkar poverty line.)“

Yay! So, are we out of the woods? Not quite. Let me explain.

The first thing that we come across here is the word “Poverty line.” But there isn’t a single poverty line. Researchers often comment on what the ideal poverty line should be in each case.

“…Fact remains as BBV argued that the existing Tendulkar-PPP $1.9 line is too low.”

Mr Bhalla recently also wrote on X. [BBV here means Bhalla, Bhasin and Virmani, well known names in poverty research]

Let us set the record straight here. $1.9 is approximately Rs 158 as per today’s exchange rate. The $1.9 line was also the international poverty line until September 2022, when the World Bank revised it to $2.15. Who can imagine living on just Rs 158 per day in this era? So, this change looks consistent with times.

However, as mentioned earlier, Bhalla and Bhasin still chose the $1.9 poverty line in the Brookings commentary. As it was in sync with the Indian official line. In the same commentary, they also noted that India should “now graduate to a higher poverty line, which would provide an opportunity to redefine existing social protection programs in order to give greater support to the genuine poor.” Fair enough.

So, what is the next sensible poverty line that India should look at?

Dr Virmani argues that to begin with, we should move to $3.2 line and then move to $4 line in 2035. Okay, noted. But considering the $3.2 line, what is the status of poverty in India today? Turns out: Excluding food subsidies, this comes out to 20.8%. That means 1 out of 5 persons in India lives with less than $3.2 i.e. Rs 266 per day. Uphill task lies ahead, make no mistake!

Coming to other notable points in the commentary. The report attributes elimination of extreme poverty to two factors – growth and reduced inequality with some interesting data points.

As far as growth is concerned, it is a well known fact that India is a huge market and the growth here is driven not by exports [like in case of other Asian Tigers] but by consumption expenditure. For now, capex is the buzzword, but everybody knows that much of India’s growth story predominantly depends on private consumption and India’s demographic dividend.

The commentary provides some noteworthy data insights. For instance,

• Real per capita consumption growth of 2.9% per annum (pa) since 2011-12
• Rural growth at 3.1% per annum was significantly higher than urban growth of 2.6%.

Time and again, it has been pointed out in development studies that rural India is where the economy’s heart lies.

Parijat Sen, in his two-year-old report on “Innovation in India’s Rural Economy” noted that rural economy contributed nearly half of the nation’s overall GDP in 2019-2020. It also employed 68% of India’s total workforce. In this context, consumption growth in rural India really matters.

The great consumption thrust has to and seems to be coming from rural segments. Otherwise, elite circles of Indian megacities were already on par with any first world country when it comes to consumption and demand for luxuries. [Remember the talk of India 1,2 and India 3 in WTF is ecommerce by Nikhil Kamath?]

What about inequality?

The next and allied concept to poverty is that of inequality. Growing inequality has always been a topic of discussion in India. So, what is the latest update from this commentary on inequality?

The authors talk about the Gini index. To start with, the Gini index is a measure of statistical dispersion [Yes, statistical – can’t avoid statistics when gauging economic development, whether you like it or not!] used to represent the wealth or income distribution of a nation’s residents. A value 0 means perfect equality – all have the same income/wealth. Gini index of 1 means perfect inequality – only one person has all the income/wealth, others have none.

The commentary says urban Gini (x100) declined from 36.7 to 31.9; rural Gini declined from 28.7 to 27.0. That is a huge positive and authors do acknowledge the need to fully explore this outcome.

One thing is surprising here. Normally during high growth phases, inequality is found to increase rapidly. Those who are rich already, get richer and poorer folks are thrown into deeper poverty. Thankfully, that does not seem to be happening as per the Gini indices quoted in this commentary. It will be interesting to see what comes out of further exploration of these numbers.

To be sure, a recent report published by SBI research noted that Gini Coefficient has declined from 0.472 during FY14 to 0.402 for FY22. [Please note: x100 Gini will be thus 40.2 in FY22 and this data is pan India, not divided into urban or rural Gini numbers]. Basically, numbers hover over around 0.4 or below now as per these two studies, which is a good decline in the Gini index. 

Target higher poverty line

At last and most importantly, as the commentary suggests, it is time to move on and target a higher poverty line. To make sensible policy decisions, this is an absolute must.

As much as we may like the idea of poverty-free India, it should not be forgotten that the commentary is based on an old poverty line which has lived beyond its times. Other sources as described above, however convincingly point to a possibility that poverty alleviation may not be the distant dream as it was thought before. We may, finally, be closer to that dream than we thought.

Let us have a look at MPI [Multidimensional poverty index] progress report by the Niti Aayog also as a parallel information source. This is based on the robust Alkire-Foster methodology developed by Niti Aayog’s technical partners, the Oxford Poverty and Human Development Initiative (OPHI) and United Nations Development Programme (UNDP). Some nuggets from the report are as below: 

We will have more about poverty in India in this space when some new exciting data comes up. Until then – let’s all continue to be upwardly mobile!