Rural poverty falls below 5% for the first time in FY24

Rural poverty rate declined faster sin 2023-24, as per SBI research

Rural poverty declined faster in rural India over the course of the year, as the poverty ratio dipped below 5 percent for the first time, according to analysis by SBI Research. A sharp rise in rural spending, brought down rural poverty to 4.86 percent in 2023-24 from 7.2 percent in the previous year and 25.7 percent in 2011-12, the latest SBI report said.

In urban areas, the decline was less pronounced at 4.09 percent in FY24 compared with 4.6 percent in the previous year.

“It is possible that these numbers could undergo minor revisions once the 2021 census is completed and new Rural Urban population share is published. We believe urban poverty could decline even further . At an aggregate level, we believe poverty rates in India could now be in the range of 4%-4.5% with almost minimal existence of extreme poverty,”  SBI Research said.

The report said physical infrastructure was leading to urban mobility, which led to shrinking gap between rural and urban areas and declining rural income inequality.

Another reason for declining rural-urban gap was the rise in government scheme transfers such as Direct Benefit Transfer (DBT).

“Around 30% of the Rural 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,” it said.

MPCS is short for monthly per-capita consumer expenditure, an important indicator of economic level of a family

Rural-urban consumption gap declined to 69.7 percent in 2023-24 from 71.2 percent in the previous year and 83.9 percent a decade ago.

The report also found that changes in food items, despite declining share in spending, had a significant impact on consumption. A 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.

India’s inflation remained above 5 percent in November, forcing the Reserve Bank of India’s Monetary Policy Committee (MPC) to hold rates steady in the December meeting for the eleventh time. The MPC now meets in February.

The SBI report states that even as per the new CPI basket inflation would have remained at 5 percent compared with 5.5 percent estimated as per old series.