Poverty, inequality have risen in the Modi years

Rather than attacking reports and studies with adverse findings as the handiwork of Urban Naxals, the government should note and address the concerns

Despite becoming the fifth largest national economy in the world (leaving out the US state of California, whose GSDP is currently the fifth largest in the world and is all set to take the fourth position – just behind US, China and Japan -- from Germany, pushing the latter to the fifth), India continues to have the largest concentration of the world’s poor, estimated at 159.8 million to 192.8 million people in 2020 using the international poverty line of PPP $2.15 a day as per a World Bank report (PPP stands for purchasing power parity).

Official estimates of poverty and inequality in India are based on the results of the household Consumer Expenditure Survey (CES) of the National Sample Survey (NSS). These are available almost uninterrupted from the mid-1950s to 2011-12. Results of the 2017-18 survey were not released by the government citing data quality issues such as divergence between consumption trends using CES and National Account Statistics (NAS). This is not unique to 2017-18 CES data and was observed in all previous CES data. While CES is based on household-level data, the NAS uses commodity flow approach to estimate private consumption at the macro level. The macro picture often hides micro-level realities.

Leaked reports of this survey in the media suggested that for the first time in four decades, the average monthly per capita consumer expenditure (MPCE) in real terms had declined by 3.7% from Rs 1,501 in 2011-12 to Rs 1,446 in 2017-18, implying that poverty had increased in India. The decline was sharper in rural India (8.8%) as compared to that in urban India (2.2%). This finding would have been embarrassing for a government which came to power on the ‘Sabka Saath, Sabka Vikas’ slogan and which was heading into the 2019 Lok Sabha election.

In the absence of official estimates since 2011-12, people have relied on estimates made by international or national agencies and researchers. While some studies suggest a decline in poverty, others indicate an increase after 2014.

A study by Surjit Bhalla, Karan Bhasin and Arvind Virmani (Pandemic, Poverty and Inequality-Evidence from India, IMF, 2022) tried to extrapolate the official poverty estimates based on 2011-12 CES data up to 2020-21 by using consumption trends based on private final consumption expenditure (PFCE) compiled by the NAS. They also argued that previous studies did not account for in-kind food transfers and thus underestimated actual consumer expenditure and hence overestimated poverty levels. Their analysis suggests that extreme poverty in India has reduced to less than 1% and food transfers played a major role. They further argue that but for the pandemic, India had almost eliminated extreme poverty! According to them, consumption inequality (a proxy for income inequality) measured through Gini coefficient has not changed much in the last three decades. The Gini coefficient, however, cannot capture resource transfers between different socio-economic groups.

Their analysis is not flawless. In using NAS data to adjust 2011-12 household-level CES data, they assume that the consumption patterns and growth across different expenditure classes is similar, which is incorrect. While they acknowledge that leakages in the public food distribution (PDS) system can affect the effective targeting of PDS foodgrains, they don’t provide any micro-level evidence of the extent of these leakages.

A UNDP report (2022) on multi-dimensional poverty (MDP) suggests that 415 million people exited poverty in India over the period 2005-2006 to 2019-20, with the incidence of poverty declining steeply from 55.1% to 16.4%. Of this, two-thirds exited during the first 10 years and one-third in the next five years. But India continues to have the highest number of poor people in the world at 228.9 million in 2020. The report cautions that the levels of undernutrition in India are still very high, based on NHFS data. Its findings pertain to the pre-pandemic period. Unlike consumption-based poverty estimates, which rely on a single criterion, the MDP is based on 10 indicators covering education, health and standard of living.

Using household-level panel data collected by the Centre for Monitoring Indian Economy (CMIE), Anand Sahasranaman and Nishanth Kumar analysed income distribution and inequality in India over the period 2014 to 2019. Their findings suggest that the bottom 10% of India’s rural population reported a decline in income by up to 41% and real average incomes declined at the rate of 4.3% per year during this period. This was the trend prior to the Covid pandemic and despite free food transfers! This group mainly consists of small and marginal farmers, and agricultural labourers whose economic situation is deteriorating. The analysis points to a regressive redistribution of resources from the bottom to the top. Credit Suisse, which compiles global wealth statistics, notes in its 2022 report that wealth inequalities in India are rising rapidly, with the top 1% of the population accounting for 41% of the national wealth.

A World Bank Report (Poverty and Shared prosperity 2022) indicates that 70 million people fell below the poverty line of $2.15 per day in the world in 2020 -- of which India alone accounted for 80% (56 million). Slower GDP growth, stagnant agricultural growth (<3% annually during 2014-20), high unemployment rates (around 8%, according to CMIE), decline in real rural wages are all contributory factors.

A study by researchers at the Azim Premji University (State of Working India 2021) indicates that the number of people with incomes below the national minimum wage threshold of Rs 375 per day recommended by the Anoop Satpathy Committee (2019) increased by 230 million during the pandemic. This implied an increase in the poverty rate by 15 percentage points in rural India and nearly 20 percentage points in urban India.

Rather than attacking reports and studies with adverse findings as the handiwork of anti-nationals and Urban Naxals, the government should note and address the growing poverty, inequality, agrarian distress, and unemployment about which even RSS General Secretary Dattatreya Hosabale expressed concern recently. As rightly said, growth without equity is not sustainable. The Modi government appears to be waking up from its deep slumber, as seen from its recent Rozgar (Job) Mela promising 10 lakh jobs over the next one and a half years, although in 2014 he had promised two crore jobs per year.

(The writer is an economist)