DECLINE IN RURAL POVERTY – ECONOMY

DECLINE IN RURAL POVERTY – ECONOMY

NEWS: Poverty declined faster in rural areas during FY24 as the poverty ratio dipped below 5 per cent.

 

WHAT’S IN THE NEWS?

  • Rural Poverty Ratio:

·         Dropped to 4.86% in FY24, compared to 7.2% in FY23.

·         Marked the first time rural poverty dipped below 5%, a significant milestone in poverty alleviation.

  • Urban Poverty Ratio:

·         Declined to 4.09% in FY24 from 4.6% in FY23, showing steady improvement in urban areas.

  • National Estimate:

·         India's overall poverty rate is now estimated in the range of 4-4.5%, according to SBI Research.

Factors Driving the Decline in Rural Poverty

  • Consumption Growth in Lower Income Fractiles:

·         Higher consumption growth among the 0-5% fractile caused a shift in the poverty line, which was earlier based on the 5-10% fractile.

·         This indicates that the poorest sections of rural society experienced notable improvements in consumption levels.

  • Enhanced Physical Infrastructure:

·         Development of rural infrastructure, particularly improved mobility, contributed to a reduction in the income gap between rural and urban areas.

·         This also narrowed vertical income disparities within rural classes.

  • Direct Benefit Transfers (DBT):

·         Government transfer schemes such as DBT accounted for 30% of rural monthly per capita expenditure (MPCE).

·         DBT transfers improved rural income stability and helped reduce poverty.

  • Government Initiatives:

·         Programs focused on rural infrastructure, increasing farmers’ income, and livelihood enhancement were key contributors to poverty reduction.

Rural-Urban Income Gap and Its Decline

  • Horizontal Gap:
    • The income disparity between rural and urban areas narrowed, attributed to improvements in rural infrastructure and direct income support mechanisms.
  • Vertical Gap:
    • Within rural areas, the income gap between different income classes also showed signs of shrinking, indicating more equitable growth.
  • Endogenous Factors:
    • Around 30% of rural MPCE was explained by endogenous rural factors driven by government policies and ecosystem improvements.

Updated Poverty Line for FY24

  • New Poverty Lines:
    • Rural poverty line set at ₹1,632 per month.
    • Urban poverty line set at ₹1,944 per month.
  • Comparison to 2011-12 Estimates:
    • In 2011-12, the Tendulkar poverty line was ₹816 per month for rural areas and ₹1,000 per month for urban areas, showing significant adjustment for inflation over the years.

Criticism of Poverty Measurement Methodology

  • Issues with Tendulkar Line Adjustment:
    • The Tendulkar poverty line is criticized for being a "destitution line" rather than a comprehensive poverty measure.
    • SBI Research's adjustment of the Tendulkar line for inflation is considered flawed because it ignores changes in household consumption patterns.
    • Critics argue that this results in a low poverty line and underestimation of poverty levels.
  • Expert Viewpoint:
    • R Ramakumar (TISS) highlighted that the methodology fails to account for evolving consumption baskets, leading to unrealistically low poverty estimates.
  • Future Revisions:
    • The report acknowledged that poverty estimates might change after the 2021 Census and updates to the rural-urban population share.

Impact of Inflation on Consumption Patterns

  • Decline in Food Spending:
    • The share of food in total expenditure declined, but higher inflation led to lower overall consumption across income groups.
  • Regional Variations:
    • Low-Income States:
      • Rural areas in poorer states experienced a more pronounced impact of inflation on consumption.
    • Middle-Income States:
      • These states were better able to sustain consumption demand, highlighting regional disparities.

Changes in Consumption Dynamics

  • Shift in Food Consumption:
    • Despite a declining share, food items continued to have a significant impact on household spending and overall consumption.
  • Income-Driven Consumption:
    • Rising incomes in rural areas, driven by government initiatives and DBT, improved household consumption levels, helping to lift families above the poverty line.

Implications of Rural and Urban Trends

  • Urban Poverty Prospects:
    • The report anticipates further reductions in urban poverty in the future as incomes rise and economic conditions improve.
  • Infrastructure and Policy Role:
    • The continued focus on rural infrastructure and welfare schemes is critical to sustain the progress in poverty reduction.
  • Comprehensive Metrics Needed:
    • Experts call for more robust and inclusive poverty measurement methodologies that consider regional disparities and changing consumption patterns.

SBI Research Observations

  • Rural poverty reduction is primarily driven by policy interventions and improvements in infrastructure.
  • The narrowing rural-urban income gap is a significant positive outcome of targeted government policies.
  • Inflation and consumption dynamics need to be studied further to ensure accurate poverty measurements and to sustain long-term poverty alleviation efforts.

Source: https://www.business-standard.com/economy/news/rural-poverty-ratio-drops-below-5-for-the-first-time-in-fy24-sbi-report-125010300733_1.html