The great Indian poverty debate is back with the recent release of monthly household consumption data, showing a significant increase in rural and urban consumption in 2023-24. The data indicate an 8 percent and 9 percent increase in urban and rural consumption in FY24. The data also reveal a further narrowing of the urban-rural consumption gap to 70 percent in FY24, down from 71.2 percent in FY23 and 84 percent in FY12.
After analysing the data, SBI economists concluded poverty had fallen below 5 percent. They fixed the rural poverty line at Rs 1,632 and urban poverty line at Rs 1,944 by simply adjusting the previous Tendulkar poverty lines for inflation. Thus, Rs 64-a-day is now considered the new poverty line, replacing the infamous Rs 32-a-day one the Rangarajan Committee defined in 2011-12.
The SBI report has shifted the poverty line to the bottom fractile (0-5 percent) of households in terms of consumption from the 5-10 percent fractile. The argument presented is that the bottom fractile has seen higher growth in consumption. However, beyond the technical and statistical debates, we should ask whether these poverty lines help policymakers eradicate poverty in the long run or merely justify the level of deprivation prevalent in the country.
The government might flaunt the SBI report to take credit for significantly reducing poverty in the country, especially through schemes like free food and cash transfers to needy people.
However, these analyses are not without flaws. Critics have consistently questioned the unjustifiably low levels of income/consumption used to define poverty lines. According to the World Bank, the international extreme poverty line is $2.15 per person daily. It uses a higher poverty line of $6.85 for middle-income countries. As a lower middle-income country, India must have a poverty line between these two figures. Therefore, it is time to adopt higher standards and more comprehensive parameters to elevate people from poverty.
UNDP Multidimensional Poverty Index (2024) estimates show 234 million Indians lived in poverty in 2022. That is much higher than 5 percent of India’s population. The UNDP index employs stricter parameters to determine a household’s poverty status. India should not shy away from the reality that it is home to one of the largest populations of poor people and adopt higher benchmarks to ensure genuine poverty alleviation.