India’s rise: Beating poverty, building inclusion

In recent months, the Indian government has faced criticism regarding its claims of significant poverty reduction. Despite India’s significant reduction in poverty over the years, the Global Multidimensional Poverty Index 2024 highlights a negative aspect by revealing that India still has the highest number of poor people (234 million), making it the largest contributor to global poverty, even as countries with lower Human Development Index (HDI) like Pakistan, Ethiopia, Nigeria, and the Democratic Republic of the Congo have smaller poor populations.

Critics argue that the government’s data may not fully capture the complexities of poverty, pointing to issues such as high food inflation impacting nutrition among poor schoolchildren and significant unemployment, particularly among the educated youth.

The latest unit level data from the National Statistical Office (NSO) has provided a fitting reply to all criticisms regarding India’s poverty elimination efforts. The findings affirm that the government’s welfare schemes and economic growth have significantly reduced poverty, countering allegations of data manipulation and underreporting. The new consumption data reveals that India’s progress is not just a mere quantitative economic growth, ballooning up it GDP and its corresponding per capita growth rate figures, it is a multi-dimensional progress, concentrated on eliminating poverty and economic inequality simultaneously.

Moreover, the recent availability of national level data has become instrumental in addressing some widely held (mis)beliefs about India’s development across the national and international audience. As per the figures based on the latest nationally representative household consumption expenditure data for 2023-24, India has reduced its poverty rate by approximately 92 percent points over the decade. It has gone down from 12.2 percent of the population living below the Poverty Line (technically known as Headcount Ratio (HCR)) in 2011-12 to just 1 percent in 2023-24.

As is often mentioned, HCR is an artefact of the chosen poverty lines, hence sceptics might worry that the lower poverty threshold would reap a higher poverty reduction, in the wake of drastic economic growth India has faced over the decades. To address this concern, even if we scrutinize poverty in India using a higher benchmark of World Bank’s $3.65 PPP poverty lines, we find that India has done exceptionally well. Using this higher benchmark, we note a decline in poverty by 71 percent, HCR dropping from 52 percent to 12 percent over the decade.

Moreover, to assess the reduction in poverty in a more nuanced fashion, it is important to study the state of deprivation of those in the bottom of the consumption pyramid. Evidence suggests that there has been a sharp increase in consumption expenditures for those belonging to the lowest thirty percent of the population. There is a significant decrease in poverty HCR in the 2023-24 using this higher benchmark. As per a study in progress by Indian Institute of Management Indore, using a World Bank’s measure of subjective poverty, called Societal Poverty, India also witnessed rapid poverty decline between 1993-94 and 2011-12, with HCR falling by 21 percent between the two decades.

Moreover, the study reports that Urban India has faced a fast pace of poverty reduction. Indian states which were much poorer in 1993-94, were successful in reducing their urban poverty at a very fast pace, compared to the richer states by 2011-12. As a matter of fact, using any measure of subjective poverty line as well, whether the societal poverty lines, strictly relative poverty lines, or objective measures like the Tendulkar Committee or Rangarajan Committee estimates of poverty: all measures, in unison, declare that India has drastically reduced its poverty HCR.

A vast amount of literature supports that high levels of economic inequality dampens economic growth and the progress in poverty reduction. Moreover, it is no less than a stylized fact that persisting intolerance towards horizontal and vertical inequalities is often associated with a lack of social cohesion, increased instability, conflicts and violence, in turn, regressing the process of economic growth. This is something we often see in conflict-ridden countries of the Global South like Pakistan, Lebanon, South Sudan, to name a few. Thus, policy makers have widely recognized inequality reduction as a major tenet of economic development in India.

Consumption inequality, measured using the Gini Coefficient, reveals that India has been achieving considerable success on the inequality reduction front as well. Multiple data sources report that India has experienced a decline in inequality over the past few years. As per one estimate, consumption inequality has declined by 22 percent over the decade from 2011-12 to 2023-24, with current Gini estimates at 29.1. And this record is surprising, especially for a country like India, which is at its high growth phase of GDP growth of more than 6 percent. The decline in inequality is contrasting to the general presentation of the Kuznets curve, which predicts rising inequality with per capita GDP growth.

Thus, it is worth exploring if these astonishing findings are the evidence for the phenomenon of efficient redistribution. The results challenge the belief of “equity-efficiency trade-off”, which implies economic efficiency and social and economic fairness won’t go hand in hand. As it seems from the reduction in inequality, through its welfare-orientation, Indian policy space has ensured that equity and efficiency go hand in hand, through policies embodying efficient re-distribution like employment guarantee schemes (MGNREGA, for instance). This entails many lessons in public policy to be learned by other low- and middle-income countries from India.

However, with the almost elimination of poverty (given 1 percent of HCR), we need to make sure that we do not learn any lessons in complacency. Experts opine to revise the poverty lines upwards, further pushing up the threshold, to assess the performance of the economy using more stringent metrics.

This is a logical corollary, given India’s exceptional performance in poverty alleviation with the given poverty thresholds. As the economy grows, the poverty lines do not stick to the mere measurements of necessities like food, shelter, clothing; they rather expand to include the concerns on meaningful social participation, a larger basket of commodities, better employment, overall welfare, and inclusion in the society. Hence, the Indian poverty eradication policy endeavors are now re-orienting themselves to focus on higher targets of human development targets and sustainable growth (for instance, up-skilling of workforce in changing times, universal basic income for all).

India, a country with a vast population size, has shown a stellar record in poverty elimination, inequality reduction, and inclusive growth. This achievement has a two-pronged impact: first, it strongly challenges the common assumptions about the abysmal state of Indian poverty and inequality conditions in the international platforms, which is not the case for the last few decades. Second, it leaves much scope for many developing nations in the Global South to learn from India, who grapple with the issues of deprivation, inequality, equity-efficiency policy tradeoffs, and essentially growth versus development conundrums.

Source: NewsBomb