MC Explains: The Great Indian Poverty Debate

For nearly 10 years, the poverty debate did not take place as the government stopped publishing Consumer Expenditure Surveys that were crucial in estimating poverty! (Representative Image)

There was a time when one of the most important questions facing government, policymakers and economists was: Has India’s poverty declined? Leading development economists, Angus Deaton and Valerie Kozel, summed the various arguments as “The Great Indian Poverty Debate”. Deaton later went on to win the Nobel Prize "for his analysis of consumption, poverty, and welfare". This explainer tries to understand the Indian Poverty Debate.

What is the Great Indian Poverty Debate?

India got its independence amid abject poverty. India’s first Prime Minister Jawahar Lal Nehru gave the famous tryst with destiny speech post India’s independence on 15 August 1947. In the speech he said: “The service of India means the service of the millions who suffer. It means the ending of poverty and ignorance and poverty and disease and inequality of opportunity.”

At the time of independence, there were expectations that nearly 80 percent of population lived under poverty. The main purpose of economic and social policy was to lower poverty.

One can only know whether poverty levels have been lowered or not by estimating the number of poor people. The Planning Commission was the main body which started to estimate poverty levels. A concept of the poverty line was devised, which defined the minimum levels of income a person needs to generate a basic livelihood. This was based on an estimate of the minimum calories a person needs to live. The poverty lines were estimated for different states and for both rural and urban areas. These state-wise and rural-urban poverty lines were aggregated to estimate poverty lines for All India rural and All India urban poverty lines.

The next step was to calculate actual income levels which have been estimated using two methods: National Income Accounts and Consumption Surveys. One then calculated many people are below the poverty line

What did these debates over time convey?

The Planning Commission was given the task of estimating poverty lines and people living below poverty lines.

All the new estimates of poverty lines and number of people living below poverty line led to several questions. Has poverty increased or decreased during the government in power? Is the poverty line high or low? Is poverty line based on income or consumption or some other measure? Have government programs worked or not?

Apart from India levels, Planning Commission released state-wise measures for both urban and rural areas. This would add more questions. Which state managed to decrease poverty faster than others? Which state increased poverty? Which state-wise policies have worked and not worked? Given the importance of poverty, the discussion involved one and all: general public, media, economists, politicians of both ruling and opposition parties and so on.

Broadly, the major criticism was that the government is showing poverty lower than is actually the case. The government responded to the criticism by establishing a new committee to estimate poverty lines and poverty ratio (percentage of people living below the poverty line). Each committee looked at new methods to compute poverty.

In 2009, the government/Planning Commission appointed a committee chaired by Prof. Suresh Tendulkar. The Tendulkar Committee revised the all-India poverty ratio from 36 percent to 45 percent for the year 1993- 94. As Tendulkar Committee poverty lines were seen on the lower side, the government appointed another committee under Dr C. Rangarajan.

Rangarajan Committee revised the all-India poverty ratio for 2011-12 from 21.9 percent based on Tendulkar Committee to 29.5 percent.

What is the status of the debate today?

For nearly 10 years, the poverty debate did not take place as the government stopped publishing Consumer Expenditure Surveys that were crucial in estimating poverty! The last survey was published in 2011-12. A Consumer Expenditure Survey was conducted in 2017-18, but it was not published. The findings were leaked by the media, which showed rural poverty had increased. The government is conducting a survey in 2022-23 and we have to wait for its findings.

The Government also abolished Planning Commission and replaced it with Niti Aayog, which adopted the United Nations Multidimensional Poverty Index which estimates poverty on three dimensions: health, education and standard of living. The Niti Aayog bases its analysis on National Family Health Survey (NFHS). As per the recent report based on NHFS 2015-16, India’s Multidimensional Poverty Ratio (MPR) is 29.9 percent, with rural MPR at 32.7 percent and urban MPR at 8.8 percent.

Within states, Bihar has the highest MPR of 52 percent and Kerala 0.7 percent.

Given the completely different methodology of Niti Aayog, one cannot compare the poverty numbers with earlier estimates. This itself has turned into a debate: why isn’t the government releasing estimates that can be compared across time.

In the absence of government estimates, researchers have come out with their own analyses. Sutirtha Roy and Roy van der Weide, in a 2022 paper, estimate consumer expenditure from the Centre for Monitoring Indian Economy's Consumer Pyramid Household Survey (CPHS). It says: ‘Poverty in India Has Declined over the Last Decade But Not As Much As Previously Thought.’ Their research shows that extreme poverty is 12.3 percentage points lower in 2019 than in 2011, with greater poverty reductions in rural areas.

Urban poverty rose by 2 percentage points in 2016 (coinciding with the demonetization event) and rural poverty reduction stalled by 2019 (coinciding with a slowdown in the economy). In 2021, researchers at Azim Premji University (APU), in their State of Working India Report for 2021, noted that poverty increased significantly during the pandemic.

This has been questioned by two research attempts. First, research by authors Surjit Bhalla, Karan Bhasin and Arvind Virmani, shows that India has almost wiped out extreme poverty. They estimate extreme poverty at 0.8 percent before the pandemic. Even during the pandemic, poverty did not increase due to government transfers. This study uses poverty data from World Bank. Second, a recent paper by Arvind Panagariya and Vishal More shows that rural poverty fell, albeit at a slow rate even during the pandemic.

Urban poverty rose during the pandemic but has started to decline in the post-pandemic phase. The authors use data from the Periodic Labor Force Survey (PLFS). APU reearchers Amit Bhasole and Mrinalini Jha have questioned the findings, saying PLFS is a survey for measuring employment and not poverty.

All these recent research papers have once again stirred the Great Indian Poverty Debate as they give opposite viewpoints. They have led to several opinion articles (one, two, three) and blogposts.

What lies ahead?

We have to wait for the Government to release the survey data on poverty to make proper comparisons. However, the credibility of the survey has been lost due to the way it was handled in the past. So if the survey shows a sharp decline, the government will claim that its policies have succeeded and the critics will look at the specifics behind the numbers. If the survey shows an increase/marginal change, then critics will point fingers at the government and the government will highlight specifics.

Whatever be the outcome of the government data, the Great Indian Poverty Debate will continue to rage and interest economists and policymakers.