A poverty trend in search of an explanation

News: Recently, two recent studies, separately, from the International Monetary Fund and the World Bank (henceforth Fund-Bank) estimated the consumption spending, and thereby poverty in India.

Importance of measurement of the progress with respect to the reduction of poverty

It is crucial to an assessment of the state of the economy of India, which harbor the world’s largest number of poor people.

Definition of extreme poverty

As per the World Bank, “extreme poverty” can be defined as per capita consumption of less than $1.90 per day.

Past Measurement

The last official estimate of poverty was undertaken by the Planning Commission for the year 2011-12.

What are the challenges?

India has not had a household consumption expenditure survey for a subsequent year which forms the ideal basis for poverty estimation.

Findings of NSSO’s consumption expenditure survey 2017-18

As per survey 2017-19, the real consumption expenditure had fallen since 2011-12.

The survey 2017-18 was rejected by the union government as defective. In addition, a leading expert stated that a decline in consumption is not possible when income (GDP) has grown.

Findings of the Fund-Bank Studies

Two recent studies from the International Monetary Fund and the World Bank estimated the poverty based on consumption spending, and thereby poverty. Both studied stated that there has been an accelerated decline in poverty in India, since 2011-12

Argument in favour of the Fund-Bank Survey

The decline in poverty has been due to lower levels of inflation since 2014. Thus, real wage growth has been faster. It enabled greater consumption and thus an accelerated decline in poverty.

Argument against the findings of Fund-bank survey

The growth of the Indian economy has slowed progressively from 2017-18. The demonetisation of 2016 has affected the majority of workers working in India.

As per the Periodic Labour Force Survey, the unemployment rate has been rising sharply since demonetisation. Therefore, it is difficult to imagine an accelerated decline in poverty during such a phase.

As per an assessment, the annual real wage growth for non-agricultural labourers was either negligible or negative during the period 2015-16 to 2019-20. Annual real wage growth was negative for construction workers. Thus, there has been very little real wage growth since 2015-2016

Way Forward

There is a need for an explanation of the accelerated decline in poverty that they report.

We need to understand the drivers of poverty to undertake any kind of remedial action.

There should be independent public bodies which can provide reliable data without any potential political interference.

In particular, a household consumption expenditure survey should be executed as soon as possible to find the trend in poverty in India in recent years.

Source: The post is based on an article “A poverty trend in search of an explanation” published in the “The Hindu” on 16^th June 2022.