Understanding poverty in India demands a nuanced assessment

Mint

12 hours ago

Next Story
Niranjan Rajadhyaksha Debates on India's poverty and inequality trends are welcome. We should be careful with global comparisons, though, and keep track of inter-generational mobility as well. India estimates consumption inequality given its large informal economy and low taxpayer base while other countries estimate income inequality. The two are very different. Gift this article
The issue of inclusive economic growth has once again gained the spotlight. The World Bank said in early June that the number of Indians in absolute poverty, or those living on less than $3 a day based on purchasing power parity, dropped from 206 million in 2011-12 to 75 million in 2022-23.
The issue of inclusive economic growth has once again gained the spotlight. The World Bank said in early June that the number of Indians in absolute poverty, or those living on less than $3 a day based on purchasing power parity, dropped from 206 million in 2011-12 to 75 million in 2022-23.
This sharp decline was despite an increase in the poverty threshold used by the World Bank. The Indian poverty rate fell from 16.22% to 5.25%.
The poverty line used to make these estimates is the median national poverty line of 28 low-income countries, or those facing mass deprivation.
However, India is no longer a low-income country. It is a lower middle-income country that should hopefully become a upper middle-income country in the early years of the next decade.
The poverty lines for these two groups of countries are naturally much higher, at $4.20 and $8.30, respectively. These would be the correct gauges to understand the extent of poverty in India.
It is usually measured using the Gini coefficient, with a value of zero depicting perfect equality and a value of 100 depicting perfect inequality. India's Gini fell from 28.8 to 25.5, suggesting that the fruits of economic growth are now more equally distributed.
The trend in India is welcome. However, international comparisons need to be handled with care. The Indian government surveys consumption rather than income levels, given the problems of estimating the latter in a country with a large informal sector as well as a low base of income tax payers.
Countries such as the US do not have such data issues. Hence, what India can estimate is consumption inequality, while other countries estimate income inequality. The two are very different.
Consumer spending is usually more equally distributed than income because the rich save more than the poor. So, comparing inequality in India with that in richer countries is like comparing apples with oranges.
Debates on the extent of poverty as well as the pattern of distribution are welcome. However, there is a third measure of inclusion that does not get adequate attention in India—inter-generational mobility.
It tracks how much the economic or social status of an individual differs from that of her parents. This story plays out over decades rather than providing a snapshot at any particular point of time, as the measures for poverty or inequality do.
A motoring analogy can be a useful way to think about the issue. Think of a road with a single lane and a long line of cars moving along it. Each car represents an individual. Also read: Mint Primer | Global poverty: How to deal with funding cuts
The speed at which the entire line of cars moves ahead gives us a sense of how rapidly each individual is improving her standard of living. The distance between the moving cars can be used to think about the problem of inequality.
Are the cars that are already ahead increasing the gap with those behind them?
Now comes the challenge of intergenerational mobility. How easy or difficult is it for cars at the back of the line to overtake those ahead of them—that is, to improve their relative position even as everyone is moving ahead?
Or are those who started off at the back because of historical reasons condemned to be laggards?
Many studies show that India does not do too well on inter-generational mobility. Those born with social or economic disadvantages find it difficult to move ahead.
A recent index released by the World Bank measures 'the extent to which a child's income depends on his or her parents' income." By this measure, the World Bank puts countries into five categories.
India comes in the last category, with very low levels of intergenerational income mobility (Intergenerational Income Mobility Around The World: A New Database by Erico Munoz and Roy van der Weide).
There are other ways to measure inter-generational mobility—in education, for example. Economists Sam Asher, Paul Novosad and Charlie Rafkin looked at the 'expected education rank of a child born in the bottom half of the education distribution."
They too found low levels of inter-generational mobility in India.
Using data from the India Human Development Survey, which provides data on primary occupations across two generations, Tadit Kundu wrote in this newspaper in 2019 that '63% of the sons born in the 1980s to fathers in any of the three occupations—farmer, agricultural labourer or construction worker—continued to remain in the same occupation."
Underlying these sobering findings is the fact that any democratic society should offer opportunities for upward mobility. Cars should be able to overtake each other rather than being locked into positions determined by inheritance.
That happens more easily when the one- lane road mentioned in the motoring analogy is widened to become a multi-lane road that makes it easier to overtake. Topics You May Be Interested In Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.