What’s India’s current poverty rate? A startling 3-3.1%, according to an estimate. In other words, just about 4.45 crore Indians are below poverty, going by the latest Household Consumption Expenditure Survey 2022-23.
Released last week, the data has thrown fresh light on expenditure patterns of rural and urban households. Since consumption expenditure is effectively a proxy for income, TNIE reached out to experts to determine the country’s prevailing income-based poverty line. The findings are rather surprising. “A quick calculation shows poverty rates have declined to 3-3.1%,” Pramod Hegde, AVP at a big 4 accounting firm. This is close to Niti Aayog’s claims of poverty falling below 5% and though Hegde believes official calculations vary, he’s firm that the final estimate won’t be way off.
Here’s the math
Now that we have the real and nominal average monthly per capita consumption expenditure for 2011-12 (when data was last available) and 2022-23, price deflator can be derived for both rural and urban areas. For rural, price deflator works out to 1.88x (cumulative inflation of 88% between 2011-12 and 2022-23), while for urban, it’s 1.84x (cumulative inflation of 84%). Applying this to the 2011-12 Tendulkar poverty line, which is Rs 816 per person a month, we get a revised poverty line for 2022-23 of Rs 1,534 for rural households and Rs 1,840 for urban households.
Now coming to the poverty rate. Let’s take rural households that responded to the survey in the 0-5% fractile, or the bottom 5% of the population and households under the 5-10% fractile -- the two groups vulnerable to extreme poverty. The bottom 5% spends about Rs 1,441 per person a month on average. One can assume that the 2.5th percentile spends Rs 1,441. The next 5% of the population fork out Rs 1,864 going by the latest data. The difference between both works out to Rs 423. And going by the earlier Tendulkar extrapolation, rural poverty works out to Rs 1,534 for the bottom 5%, which is Rs 93 higher than the average monthly consumption expenditure of Rs 1,441.
On the one side we have a gap of about Rs 400 between the bottom 5% and bottom 10% of the households. Two, between the 2.5 percentile and 7.5 percentile, the gap between the poverty line and the 2.5% is roughly Rs 100. So it’s 100/400, you distribute equally among the 5% we arrive at a rural poverty rate of about 3.5%.
Among urban households, the average monthly expenditure at the bottom 5% stood at Rs 2,087, and it’s assumed the 2.5 percentile spends Rs 2,087. The urban poverty, computed earlier, is at Rs 1,840 and using a linear extrapolation, urban poverty rate is at about 2%. A weighted average of urban to rural population ratio, headline poverty rate is estimated at somewhere close to 3 to 3.1%.
“This is only linear extrapolation taking median average, official calculations may slightly vary, perhaps taking average around the mean number. Besides, there will be unit level data of households and their individual consumption patterns. Still, the overall poverty rate won’t be way off from 3% as per my estimates,” reasoned Hegde.