Rural, urban poverty ratios plunge to 4.86, 4.09 in FY24 from 25.5, 13.7 in FY12

There is a possibility that these numbers may undergo minor revisions once the 2021 census is completed and new rural-urban population share is published.

URBAN POVERTY 1091426.JPG Center-Center-Delhi

Economists at the nation’s largest lender SBI has said if the outcomes of the latest consumption expenditure survey is any indication, rural poverty has dropped to 4.86 percent in financial year (FY) 2024 from 7.2 percent in FY23 and a high 25.7 percent in FY12. While, urban poverty has plunged to 4.09 percent last fiscal from 4.6 percent in FY23 and 13.7 percent in fiscal 2012, taking the overall  poverty levels to 4-4.5 percent in FY24.

According to Soumyakanti Ghosh, the chief economic advisor to the bank, this sharp decline in rural poverty is due to the higher consumption growth in lowest 0-5% decile with significant government support.

Ghosh admits that there is a possibility that these numbers may undergo minor revisions once the 2021 census is completed and new rural-urban population share is published. But he is sure that urban poverty may decline even further.

At an aggregate level, we believe poverty rates could now be in the range of 4-4.5% with almost minimal existence of extreme poverty, says Ghosh.

One of the reasons for the shrinking horizontal income gaps between rural and urban populations and the vertical income gap within rural income classes is the enhanced physical infrastructure that’s enabling better rural mobility.

Another reason for the decline in the rural-urban gap is the decline in the share of food in overall expenditure in rural areas compared to urban areas over the figures in FY12.

The difference between rural and urban monthly per capita consumption expenditure (MPCE) to rural MPCE is now at 69.7 percent, a rapid decline from 88.2 percent in FY10, and this is mostly due to the initiatives government has taken in terms of direct cash transfers, building rural infrastructure, and improving the rural livelihood significantly.

Given these changes, the poverty line estimate of Rs 816 in rural areas and Rs 1,000 in urban areas in FY12 has gone up to Rs 1,632 in rural area and Rs 1,944 in urban areas in FY24. Of course higher inflation and the steep fall in the value of the rupee also have to be considered.

Similarly, the consumption inequality has declined from 0.266 and 0.314 in FY23 to 0.237 and 0.284, respectively in rural and urban areas in FY24.

Vertical consumption inequality across fractile classes within rural and within urban areas reveals it has declined from 0.365 to 0.306 for rural (rural income is trending towards more equitable distribution) while for urban markets, it has declined from 0.457 to 0.365 in FY24.