India’s Poverty and Inequality Reduction Achievements

Recent studies indicate transformation in India’s socio-economic landscape. Economists Surjit S Bhalla and Karan Bhasin have reported a dramatic decline in poverty and inequality over the last decade. Their findings, based on household expenditure data from 2022-2024, reveal that extreme poverty is nearing eradication.

Extreme Poverty Nearly Eliminated

The report marks a staggering drop in the poverty rate. According to the World Bank‘s $3.65 PPP poverty line, India’s poverty rate plummeted from 52% in 2011-12 to 15.1% in 2023-24. Even at the lower $1.90 PPP extreme poverty line, the rate has fallen below 1%. The most improvements have been observed in the bottom three deciles of the population, indicating that the poorest segments have experienced the highest increases in consumption.

Inequality on the Decline

Contrary to popular belief, the study shows that consumption inequality in India has decreased. The Gini coefficient, a standard measure of inequality, fell from 37.5 in 2011-12 to 29.1 in 2023-24. This reduction is noteworthy, especially for a large economy like India, where inequality typically rises during periods of rapid growth. Only Bhutan and the Dominican Republic have demonstrated better records of inequality reduction, but their populations are smaller.

Need for a New Poverty Line

The study advocates for a reevaluation of India’s current poverty lines. The existing measures, based on outdated criteria, fail to reflect the current economic realities. The authors propose adopting a new benchmark, such as the spending level of the bottom 33rd percentile or a relative poverty measure similar to those used in Europe, where poverty is defined as 60% of median income.

Survey Data Validity

Concerns regarding the reliability of survey data are addressed in the study. The latest surveys employed an enhanced three-visit methodology to capture consumption data accurately. The consumption-to-national-accounts ratio remained stable, indicating that the observed decline in poverty is genuine and not merely a result of methodological changes.

Recommendations for Future Focus

The authors suggest that with extreme poverty nearly eradicated, India’s focus should shift from poverty alleviation to strengthening the middle class. This transition is vital for sustaining economic growth and ensuring equitable development across all strata of society.

Questions for UPSC:

1. Discuss the implications of the decline in poverty rates on India’s economic growth.
2. Critically examine the effectiveness of the current poverty measurement methods in India.
3. Explain the significance of the Gini coefficient in understanding economic inequality.
4. What are the potential socio-economic impacts of strengthening the middle class in India? Discuss with examples.

Answer Hints:

1. Discuss the implications of the decline in poverty rates on India’s economic growth.

1. Lower poverty rates can lead to increased consumer spending, boosting demand for goods and services.
2. A healthier population contributes to a more productive workforce, enhancing economic output.
3. Reduction in poverty can lessen the burden on social welfare programs, allowing for reallocation of resources to development projects.
4. Improved poverty status can attract foreign investments, as stability encourages investor confidence.
5. Economic growth can become more inclusive, reducing regional disparities and promoting balanced development.

2. Critically examine the effectiveness of the current poverty measurement methods in India.

1. Current methods are based on outdated criteria that do not reflect contemporary living costs and consumption patterns.
2. Existing poverty lines fail to account for regional variations in prices and living standards.
3. The methodology lacks consideration for non-monetary factors influencing poverty, such as access to education and healthcare.
4. Recent studies suggest new benchmarks, like the bottom 33rd percentile spending, could provide a more accurate picture.
5. Regular updates and revisions are necessary to ensure that poverty measurements align with economic realities.

3. Explain the significance of the Gini coefficient in understanding economic inequality.

1. The Gini coefficient quantifies income distribution within a population, ranging from 0 (perfect equality) to 1 (maximum inequality).
2. A declining Gini coefficient indicates improving income distribution, suggesting that wealth is becoming more evenly spread.
3. It helps policymakers identify trends in inequality and assess the effectiveness of economic policies.
4. Comparisons of Gini coefficients across countries can highlight relative levels of inequality and inform international economic discussions.
5. About Gini trends assists in targeting interventions to reduce inequality and promote social equity.

4. What are the potential socio-economic impacts of strengthening the middle class in India? Discuss with examples.

1. A robust middle class drives economic growth through increased consumption and investment in local businesses.
2. Strengthening the middle class can lead to greater political stability, as a larger, economically secure population demands better governance.
3. It can enhance social mobility, providing opportunities for education and entrepreneurship, thereby reducing inequality.
4. Examples include the rise of the IT sector in urban areas, where a strong middle class has fueled demand for services and innovation.
5. A vibrant middle class can also improve public services, as they tend to advocate for better infrastructure and healthcare.