Rural poverty ratio fell below 5% in FY24 for the first time: SBI Research

Poverty declined faster in rural areas during FY24 as the poverty ratio dipped below 5 per cent for the first time to 4.86 per cent from 7.2 per cent in FY23, according to a study by SBI Research released on Friday.

 

In comparison, the poverty ratio in urban areas fell to 4.09 per cent from 4.6 per cent during the same period.

 

The report notes this decline in the rural poverty ratio is on account of higher consumption growth in the 0-5 per cent fractile, leading to a shift in the poverty line from the 5-10 per cent decile in FY23 to 0-5 per cent decile in FY24.

 

 

“Enhanced physical infrastructure is scripting a new story in rural mobility [as it is] one of the reasons for the increasingly shrinking horizontal income gap between rural and urban and the vertical income gap within rural income classes,” notes the study, based on the latest Household Consumption Survey (HCES) results. 

 

Further, the report notes another reason for the declining rural-urban gap was the rise in transfer schemes such as Direct Benefit Transfer (DBT) 

 

“Around 30 per cent of the rural monthly per capita expenditure (MPCE) is explained by factors that are endogenous to the rural ecosystem. Such endogenous factors are mostly due to the initiatives the government has taken in terms of DBT transfers, building rural infrastructures, augmenting farmer’s income, improving the rural livelihood significantly,” the report noted.

 

Adjusting for decadal inflation and the imputation factor in the poverty line set by Suresh Tendulkar, the SBI report estimated the new poverty line for FY24 at Rs 1,632 per month for rural areas and Rs 1,944 for urban areas. Earlier in 2011-12, an expert group headed by Tendulkar had estimated the poverty line at Rs 816 for rural areas and Rs 1,000 for urban areas. 

 

However, R Ramakumar, professor, Tata Institute of Social Sciences says that the SBI report uses a flawed poverty line by simply updating the Tendulkar poverty line for inflation to create poverty lines for 2022-23 and 2023-24. 

 

“To begin with, the Tendulkar poverty line is not a poverty line, but just a "destitutional line" and the previous government had to form the C Rangarajan committee. Also, the SBI report uses a method for updating the poverty line that does not account for changes in the consumption basket of households. Due to both these reasons, among others, they end up using a very low poverty line. Unsurprisingly, they obtain a very low level of poverty. In short, they have underestimated the poverty line to obtain a lower estimate of poverty,” he added. 

 

Separately, the report also mentions the poverty rate in India could now be in the range 4-4.5 per cent. 

 

“It is possible that these numbers could undergo minor revisions once the 2021 census is completed and a new rural-urban population share is published. We believe urban poverty could decline even further,” the report said.

 

The report also notes changes in food items, despite a declining share in spending, had a significant impact on consumption. Higher inflation translated into lower consumption across the board. This impact was more pronounced in rural areas of low-income states.

 

Alternatively, middle-income states were largely responsible for sustaining consumption demand.

 

“Moreover the SBI report also does not appreciate the methodological changes in successive rounds of NSS, which render many estimates NOT comparable across time. The NSS surveys use the modified mixed reference period (MMRP) from 2011-12, and the earlier method of mixed reference period (MRP) is not used in the surveys conducted in 2022-23 and 2023-24,. The SBI report totally ignores these important methodological changes across the NSS rounds,” he says.