Amidst the Indian debate on what happened to poverty after 2011-12, a new estimate has been released by SBI Research (bit.ly/3OTen60). Based on consumption from the Periodic Labor Force Survey (PLFS) for 2020-21, it is estimated that poverty in India declined to 17.9% in 2020-21 as compared to the last available official estimate of 21.9% in 2011-12. These were also endorsed by the Chairman of the Economic Advisory Council (EAC) in the Prime Minister’s Mint column (bit.ly/3y5jQjt). These new estimates suggest an annual decline of 2.75 million in our poor numbers during 2012-21, as against a decline of 20 million every year between 2004-05 and 2011-12. The data confirms the conclusion of a sharp slowdown in India’s poverty reduction rate by two other estimates by authors affiliated with the World Bank and the International Monetary Fund, released earlier this year. Despite the EAC’s support, the latest estimates are problematic, given the non-comparability of consumption aggregates between the two surveys.
While a definitive answer to what happened to poverty will only be available once the results of an ongoing consumption survey come out, a comprehensive conclusion of poverty reduction over the past decade has been drawn by many analysts. But even without methodological juggling, there is ample evidence to suggest that the economic condition of most people at the bottom of the distribution has worsened. This is especially true for the last five years since the economy slowed after 2016-17. The pandemic only added to the misery, with the latest estimates from national accounts showing a 0.2% per year decline in per capita real income between 2018-19 and 2021-22. This is corroborated by the findings of the PLFS, which presents consumption and income estimates for 2017-18. Although these cannot be compared with the consumption estimates for 2011-12, they are comparable to each other.
Firstly, the per capita real income from PLFS surveys also shows a decline of 1.1% per annum between 2018-19 and 2020-21. While this rate of annual decline is higher than the respective national account estimates, the PLFS also reports that the decline was primarily due to weaker urban per capita income, which decreased by 4.2 percent per year over that period, even though per capita Rural income grew at the rate of 2.7% per annum. That these are not aberrations can be seen in the consumption expenditure estimates from the PLFS data, which show a 0.12% per year decline in per capita monthly consumption between 2018-19 and 2020-21. Once again, per capita consumption in urban areas declined by 4% per annum, while rural per capita consumption increased by 3.7% annually. The PLFS data also shows that the proportion of India’s population whose per capita income was not sufficient to meet consumption expenditure increased from 26% in 2018-19 to 29% in 2020-21.
The decline in our urban income and consumption calls into question the claims of economic revival. While it is true that the urban sector, services and the informal sector were particularly badly hit by the Covid disruptions, the rural sector fared better as the agriculture sector declined. But even in villages, wage workers have suffered in the last five years, with real wages showing a decline. Data on this as of April 2022 confirms that both agricultural and non-farm wages have declined in the previous year, with agricultural wages falling by 2% annually and non-farm wages by 3.8%. Over the past five years, non-farm real wages have declined by 1% per annum, while agricultural wages have remained stagnant (with an increase of 0.05% per annum). Given that wages are a strong proxy for poverty, the variety of evidence for poverty reduction is not surprising.
The decline in poverty reduction trends in India over the past decade is worrying. But what is also a concern is the sharp decline in urban income, which has implications for demand revival in the economy, given the large role of our urban middle class in the discretionary spending needed to recover. While this may have contributed to reducing inequality, it also creates the problem of sustaining economic growth. Some of these trends may worsen in the wake of an inflationary spiral that will reduce our real disposable income. Clarity on poverty may be unavailable until we have the consumption expenditure data currently being surveyed. However, trends in the evidence raise concerns over the increasing vulnerability of people and the sustainability of development. Despite our debate on poverty, these require an immediate response.
Himanshu is Associate Professor at Jawaharlal Nehru University and Visiting Fellow at Center de Sciences Humanes, New Delhi