Has poverty really dropped to 5% in India?

NITI Aayog B.V.R. Subrahmanyam recently claimed that less than 5% of Indians now live below the poverty line. He made the claim based on the findings of the Household Consumption Expenditure Survey (HCES), 2022-23. Mr. Subrahmanyam argued that the average consumption expenditure in the bottom 5% of India’s population, as estimated by the survey, is about the same as the poverty line in India, suggesting that the poverty rate in India is somewhere in the range of 0 to 5%. Has poverty really dropped to 5% in India? Surjit Bhalla and Jayati Ghosh discuss the question in a conversation moderated by Prashanth Perumal J. Edited excerpts:

The claim is that less than 5% of Indians live below the poverty line. Can you explain how the poverty line is defined in India? Does the poverty line need to be raised?

Surjit Bhalla: We are talking about the change in the level of poverty. In 2011-12, the poverty level in India, based on the same poverty line (as of today), was 12.5%. Now it’s down to 5%. If you apply the poverty line, which is today close to ₹1,500 in rural areas and ₹1,800 in urban areas according to the Tendulkar poverty line, you get something close to a poverty level of 2%. Therefore, we have moved from something like 12.5% in 2011-12 to 2% in 2022-23 and that definitely suggests that the poverty line needs to be raised around the world. Extreme poverty is what has been eliminated. We have made good progress, but we have to raise the poverty line. If we apply the World Bank’s lower- middle-income line to calculate poverty, we get a poverty level of something like 25% in rural areas and 11% in urban areas, which gives you a poverty rate of 21%. So, there is no question that the poverty line needs to be raised.

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Jayati Ghosh: Whatever is being used as the poverty line today is inadequate. But I want to highlight a couple of things. First, officially, there is no declared income poverty line right now. What Surjit is using is the Tendulkar line adjusted for consumer price inflation and the World Bank’s purchasing power poverty line of $2.15 a day, both of which would give you less than 5% extreme poverty or extreme destitution. However, there is a problem. The Tendulkar line itself was not really conceptually based on anything. It broke away from the idea that you need a certain minimum calorie requirement to be fulfilled and therefore households that spend at least that much on calories would be above the line. So we don’t actually have a poverty line in India. The government has not announced any clear poverty line. Also, we have to be careful when comparing this survey over time because the official report makes it explicit that this is not comparable with earlier surveys.

The survey says consumption expenditure has gone up about 2.5 times since 2011-12, but critics say income has not risen in tandem to corroborate this claim. What explains the gap?

Surjit Bhalla: Well, that’s in nominal terms. Consumption has gone up per capita by about 40% over the last 11 years in real terms. So, I don’t see what the problem with that is. There are other figures that corroborate the claim. Look at wages. The Periodic Labour Force Survey (PLFS) provides you with data on the wages of different workers. For agricultural workers, wages have gone up 3.2% per year since 2011, so real wages have really gone up. Further, tax data show a reasonably strong, robust growth since 2011 in the wages of salaried workers. So, you have data showing that incomes have gone up and therefore consumption has gone up.

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Jayati Ghosh: It’s unfortunate that we have to keep disagreeing even on data, but there are so many different studies that looked into real wage data and show that real wages have grown by less than 1% per annum since 2017. And they have fallen for construction workers. What’s more important is that the increase in employment that has been celebrated in the latest PLFS in 2022-23 doesn’t actually exist because it’s generally due to the dramatic increase in unpaid family helpers. That is, people who work in family enterprises in unpaid forms. At the moment, the PLFS shows us that 37.5% of women workers are unpaid, which is an increase from 32% in 2011-12 and 2017-18. If you look at only the paid employment rate (that is, of people who are working and getting paid for their work), it’s only 48% for men and 13% for women. So, we really do not have any indications that real wage incomes are growing for most working families.

Also read | Congress slams the Niti Aayog report on poverty reduction

The National Sample Survey Organisation is showing us that real consumption grew at around 3% per annum. Yes, but what’s really happening here is a dramatically increased consumption of the top 10 to 15%, and this is widely documented. The fact is that whatever consumption we have is driven by the upper deciles. We also have many other indicators, like the demand for mass consumption goods and fast-moving consumer goods; they are hardly increasing. There is stagnation in demand for two-wheelers; sales are less than they were pre-demonetisation (pre-November 2016).

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GDP growth is now driven by capital expenditure, largely public capital expenditure, because we really haven’t seen the same revival in private investment, largely because mass consumption demand is stagnant.

What do you have to say in response to the arguments made by critics about the unreliability of the government’s data?

Surjit Bhalla: We need a larger discussion about the quality of private sector data. I’m particularly concerned about data from the CMIE (Centre for Monitoring Indian Economy) which show that female labour force participation rate in India is lower than that in Yemen and Iraq. This implies that only 9% of women are working in India. Second, regarding government data, we know that the 2017-18 consumer expenditure survey data were not released because of bad quality. The government should have released that data, but it doesn’t negate the fact that that data was of awful quality. The point is that the data offered by the private sector is perhaps much worse than government data.

Comment | Multidimensional Poverty Index reduction under the NDA is flawed

Jayati Ghosh: I don’t agree because numbers in India now are politicised like never before. The consumer expenditure survey of 2017-18 was scrapped apparently because it was of poor quality, but we need to have the survey results and see what exactly was wrong. But look at the way the PLFS was not even released until after the 2019 Lok Sabha elections. Look at the attack [last year] on the head of the agency [the International Institute for Population Sciences] that provides guidance for the National Family Health Survey because the survey came out with results on open defecation, etc. that were not to the liking of the government. Look at the suppression of many audit reports like the ‘Clean Ganga’ mission. Look at the fact that we haven’t even had a Census yet, four years after we are supposed to have started this process. Look at selective publication of partial reports that do not provide all the usual details, whether it was the Economic Survey before the Vote on Account this year, which came out more like a propaganda sheet than an actual Economic Survey, or even this particular consumption report which does not give us sufficient details. This is something of deep importance because we had one of the best statistical systems in the world for a low- to middle-income country, and for this to be destroyed in a very blatantly politicised way is a serious problem.

NITI Aayog’s CEO argues that more people are spending on items beyond just basic food stuff like cereals. Isn’t this a sign of economic progress?

Jayati Ghosh: Absolutely. But this has to happen with an increase in income, right? This is not a surprise and it certainly is valid. It’s also true that as there is much more mechanisation, much less walking etc., you need to eat less cereals and you should have a much more balanced and nutritious diet. But you know there’s a new United Nations report that just came out and it says 74% of the Indian population cannot afford the minimum nutritious diet prescribed by the FAO (Food and Agricultural Organization) for South Asia. So we are still very far behind.

Comment | Consumption-based poverty estimates have relevance

Surjit Bhalla: In the 1980s, we all thought calories were an important indicator of poverty. A survey in the U.S. at that time said that 80% of American women were malnourished according to caloric consumption standards. Thankfully the World Bank has changed and got to an absolute income level by which to define poverty.

Jayati Ghosh: Nutrition is a critical part of well-being. The indicator that is produced by 12 UN agencies put together does not rely on only calorie consumption. It is a much more sophisticated indicator and it’s on that basis that they have realised that 3/4th of the Indian population cannot afford the minimum nutritious diet.

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Surjit Bhalla is a former member of the Prime Minister’s Economic Advisory Council; Jayati Ghosh is a development economist and author of The Making of a Catastrophe: The Disastrous Economic Fallout of the COVID-19 Pandemic in India