Last month, the World Bank released yet another set of poverty estimates for India and bang, bang. The hammer dropped. Extreme poverty is nearly dead. Just some 3.3 crore Indians are extremely poor as against 23 crore a decade ago.
According to the World Bank's Spring 2025 Poverty and Equity Brief, India has lifted 171 million out of extreme poverty. It also made strong gains in poverty reduction at the lower-middle-income level -- measured at $3.65 per day -- which fell from 61.8% to 28.1%, lifting 378 million out of poverty.
The latest estimates, coming in the backdrop of intense trade and terror tensions, sprinkle some much-needed stardust on the macroeconomic front.
Importantly, it allows the government to flash a V-sign as the numbers are in line with India's recent Household Consumption Expenditure Survey 2022-23, which too indicated that extreme poverty has been ripped out by the roots pegging poverty rate somewhere between 2.8 crore and 7 crore. The previous official poverty estimate in 2011 counted 26 crore, or 21.9% of the population as extremely poor.
Lastly, the estimates also conform with the 2020 IMF working paper by economists Dr Surjit Bhalla, Karan Bhasin and Arvind Virmani, which drew sharp criticism and praise for projecting poverty rate at 2.5%.
Meanwhile, according to the World Bank report, if the five most populous states including Uttar Pradesh, Maharashtra, Bihar, West Bengal, and Madhya Pradesh accounted for 65% of India's extreme poor in 2011-12, they contributed to two-thirds of the overall decline in extreme poverty by 2022-23.
But hey, hold the jubilation.
Not all in the country are convinced that poverty has well and truly declined to the extent the statistics suggest and call for careful scrutiny. Critics counter that there's really no glory in telling people stuff they either don't believe or cannot accept as ground reality. They reason that in the absence of broad-based growth, there's no way of spinning the math to make poverty numbers look rosy and without growth, nothing can actually kill poverty. Not facts. Not figures. And certainly not a flock of forecasts.
In fact, as the World Bank noted, the significant reduction in poverty numbers isn't attributed to equal growth opportunities improving livelihoods, but due to food and cash transfers and other government welfare programmes.
In its own words, the sharp decline in both extreme and lower-middle-income poverty, along with the narrowing rural-urban poverty gap reflects the government's effective efforts. Free and subsidised food transfers supported poverty reduction, and the rural-urban poverty gap narrowed.
Through targeted welfare schemes, economic reforms, and increased access to essential services, India has made substantial strides in reducing poverty levels, the report observed.
It means, the proportion of people living on less than $2.15 a day -- the international benchmark for extreme poverty -- will in all likelihood shoot up the minute policies to better people's lives such as free food programmes and cash transfers grind to a halt.
If you recall, the World Bank's 2022 estimate pegged India's poverty rate at 11.9% during the pandemic year 2021. Though the country did register the world's fastest growth rates, it didn't translate as much towards poverty reduction. In fact, some private estimates too project higher poverty rates, which sit oddly with the World Bank's latest estimate. But analysts discount it as a difference in survey methodologies and recall periods, or the duration of time over which the survey respondents are asked to list their expenditures.
Currently, the World Bank pegs extreme poverty reduced sharply from 16.2% in 2011-12 to 2.3% in 2022-23. While in rural areas it fell from 18.4% to 2.8%, in urban areas, it reduced from 10.7% to 1.1%. The gap between rural and urban poverty shrunk from 7.7 percentage points to 1.7 percentage points, with an annual decline rate of 16% in a decade.
Why experts are batting for a higher poverty line
The same could hold true for poverty numbers at the lower-middle-income level.
The World Bank finds that the poverty rate at the lower-middle-income level declined by 33.7 percentage points from 61.8% to 28.1%, lifting 378 million. Within this, rural poverty fell from 69% to 32.5%, while urban poverty dropped from 43.5% to 17.2%. The rural-urban poverty gap narrowed from 25 to 15 percentage points, with a 7% annual decline.
The above estimates are based on 2017 purchasing power parity terms and if you consider 2021 PPPs, we'll get a revised extreme poverty line of $3.00 (constituting a 15% higher threshold than $2.15 expressed in 2021 prices) and result in a 5.3% poverty rate in 2022-23. Similarly, a new lower-middle-income line of $4.20 would imply a 5% lower threshold for poverty than $3.65 adjusted in 2021 prices and yield a poverty rate of 23.9%.
Which is why experts are batting for a higher poverty line. Currently, we use the Tendulkar poverty threshold, where a person living on a monthly expenditure of Rs 1,000 per month or Rs 33 or less per day in cities, and Rs 816 per month or Rs 27 or less per day in villages is considered poor.
Adjusted for purchasing power parity rates, it falls closer to the World Bank's extreme poverty measure of $2.15 per person per day (earlier $1.90).
For long, the Tendulkar estimate is considered low for a growing economy like India, and hence the government formed another expert group led by Dr C Rangarajan to relook. Subsequently in 2014, the Rangarajan Committee suggested a slightly higher monthly threshold of Rs 1,407 (Rs 47 per day) for urban areas and Rs 972 (Rs 33 per day) for rural areas. But this wasn't accepted and so we continue to live with the Tendulkar poverty line adopted way back in 2009.
Incidentally, the latest consumption expenditure survey too confirms the changing expenditure patterns of households, reinforcing the need to move away from the existing extreme poverty line of $2.15 per person per day to the lower-middle income poverty line of $3.65.
Another reason that supports the call for an increase in the threshold is the positive trends in employment growth, particularly since 2021-22, with significant improvements in both rural and urban areas. Official data shows that employment growth has outpaced the working-age population since 2021-22, with rising employment rates, especially among women. Urban employment fell to 6.6% in Q1, FY24-25, the lowest since 2017-18.
Even as it remains unclear if India has indeed crossed the poverty divide, the question is if we can continue to lift more poor people during the current decade?
Last October, the World Bank noted that global poverty reduction has slowed to a near standstill, and concluded 2020-2030 will most likely be a lost decade. At the current pace of progress, the report noted that it would take decades to eradicate extreme poverty and more than a century to lift people above $6.85 per day mark.
