For First Time, Rural Poverty Goes Below 5% In FY24: SBI Research

A recent study by SBI Research has revealed a significant decline in rural poverty during FY24, with the poverty ratio falling to 4.86 per cent from 7.2 per cent in FY23. This marks the first time the rural poverty rate has dipped below 5 per cent. In comparison, urban poverty also saw a reduction, decreasing to 4.09 per cent from 4.6 per cent over the same period.

The report attributes the sharper decline in rural poverty to increased consumption growth in the 0-5 per cent income fractile. This shift has moved the poverty line from the 5-10 per cent decile in FY23 to the 0-5 per cent decile in FY24. Enhanced rural mobility, driven by improved physical infrastructure, is highlighted as a key factor behind the narrowing income gap between rural and urban areas and within rural income classes.

“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,” the report stated.

The rise in government transfer schemes such as Direct Benefit Transfers (DBT) also contributed to the decline in rural poverty. “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 farmers’ income, and improving the rural livelihood significantly,” the report noted.

Updated Poverty Lines and Criticism

Based on the latest Household Consumption Survey (HCES) results, the report estimates the poverty line for FY24 at Rs 1,632 per month in rural areas and Rs 1,944 in urban areas. This is an inflation-adjusted update of the poverty line set by the Suresh Tendulkar committee in 2011-12, which was Rs 816 for rural areas and Rs 1,000 for urban areas.

However, some experts have criticized the methodology used in the SBI report. Professor R. Ramakumar of the Tata Institute of Social Sciences questioned the validity of the updated poverty line, calling it a “destitutional line.”

“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,” Ramakumar said.

He also pointed out that the report fails to account for methodological changes in successive rounds of the National Sample Survey (NSS), such as the shift to the modified mixed reference period (MMRP) from the mixed reference period (MRP) used earlier.

Broader Trends and Future Prospects

The SBI report estimates India’s overall poverty rate to be between 4 per cent and 4.5 per cent, suggesting that urban poverty could decline further once the 2021 census and new rural-urban population shares are finalized.
The report also highlights the impact of higher inflation on consumption patterns, noting that it led to reduced consumption across rural areas, particularly in low-income states. Conversely, middle-income states played a significant role in sustaining overall consumption demand.

Despite its findings, the SBI report has sparked debate over its methodology and conclusions, leaving room for further examination as additional data becomes available.

Also Read: Poverty in India: A Disturbing Reality Despite Claims of Progress?