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Hans India
21-07-2025
- Business
- Hans India
Here is why India's declining consumption inequality deserves recognition
Therecent decline in India's consumption-based Gini coefficient—from 28.8 in 2011-12 to 25.5 in 2022-23, as reported by the World Bank—has prompted considerable scrutiny, particularly when juxtaposed with income-based estimates from the World Inequality Database (WID), which peg India's Gini at an ostensibly alarming 62 in 2023. Reconciling this apparent dissonance necessitates a closer interrogation of the underlying metrics, data sources, and conceptual frameworks. What follows is a reasoned engagement with the criticism—one that distinguishes methodological incompatibilities from substantive economic realities and highlights the perils of conflating fundamentally distinct measures of inequality. At the core of this divergence is a critical conceptual distinction: the difference between consumption inequality and income inequality. In a country like India—characterised by a large informal workforce, extensive in-kind transfers, and a rapidly expanding welfare architecture—income is often volatile, underreported, or difficult to capture comprehensively. Consumption, by contrast, tends to be smoother over time and more reflective of actual living standards. The World Bank's Poverty and Inequality Platform (PIP) adopts this logic, using either disposable income or consumption expenditure depending on national context. Firstly, it is worth pointing out that the World Bank in its paper titled 'The World Bank's New Inequality Indicator' gives a way of converting consumption gini to income gini and vice versa. The bank estimated that the average ratio of income-to-consumption Gini coefficients across 84 country-years where data was available for both is 1.13. Applying this directly to India's consumption-based Gini of25.5 yields an approximate income Gini of 28.8. This still places India at 12th, even under income-equivalent assumptions. This simple approximation gives a way of comparing welfare types within PIP database. This raises a pertinent question: why has this not been more widely acknowledged? The answer perhaps lies in the tendency to selectively emphasise outlier estimates. When the simple approximation given is used for comparison across nations, India's inequality even when measured in income terms is significantly lower than the United States and UK. Among the 48 nations where welfare approach is consumption based; India ranks third. India's consumption-based Gini coefficient of 25.5 in the PIP database is also internationally striking. China's consumption of Gini, for instance, stands at 35.7, according to the same database and using the same welfare concept. This 10-point difference is significant. Secondly, why is the impact of large-scale social welfare schemes conspicuously spared from criticism? In a country like India, where large-scale social welfare programmes—such as subsidized food, LPG, housing, rural employment, health insurance, and direct cash transfers—have significantly boosted the living standards of the poor, consumption will inevitably be higher and more equitably distributed than income. These forms of public provisioning raise welfare especially in rural and informal segments. In BE 2025, the Union Government's spending on beneficiary schemes amounts to ₹7.1 lakh crore, and states together add another ₹7.4 lakh crore. This totals to nearly ₹14.5 lakh crore. According to PLFS data, the average monthly earning by regular salaried worker is approx. Rs 21,000 and approx. Rs 14,000 for self-employed. The average earning per day by a casual labourer is Rs 433. Using these approximations and accounting for dependency assuming a family of four, this translates to an income of Rs 65,000 per capita. Assuming 80 per cent of the total beneficiary schemes reaches bottom 50 per cent, this translates into Rs 15,000 per year/per person accounting for leakages and overlaps through direct and indirect benefits. This uplift of approx. 20% in effective resources translates into consumption. Thus, even under these conservative assumptions, this significantly compresses effective inequality. These interventions have also led to a dramatic fall in poverty, with the extreme poverty rate dropping from 16.2 per cent in 2011–12 to 2.3 per cent in 2022–23. At the lower-middle-income line of $3.65/day, poverty fell from 61.8 per cent to 28.1 per cent. Before accepting WID's estimates at face value, shouldn't we ask what exactly they are measuring? Coming onto the WID database, their benchmark income concept is: 'Pre-tax, post-replacement national income', that is, before taxes and transfers, except for social insurance components like pensions and unemployment benefits. This means that they exclude most non-contributory welfare transfers — like India's Direct Benefit Transfers (DBT), food subsidies, LPG schemes, Ayushman Bharat, rural housing, and more. India's social protection system relies much more heavily on non-contributory transfers than contributory insurance. These are not counted in the WID's income concept, even though they materially raise real income and purchasing power. This creates a systematic downward bias when WID measures inequality in India by ignoring the redistributive effect of these targeted schemes and Inflating the apparent concentration of national income at the top. So, under WID's income inequality framework, we are essentially saying that major upliftment schemes in India — have zero impact on measured inequality. Secondly, WID relies heavily on tax records to compile its database. Now, even if we look at tax records, Gini coefficient estimated using ITR data of taxable income of individuals shows that individual income inequality has decreased from AY15 (FY14) to AY23 (FY22) from 0.472 to 0.402. 43.6 per cent Individual ITR filers belonging to the Income group of less than Rs four lakh in AY15 (FY14) have left the lowest income group and shifted upwards. A comparison of disparity in income during FY14 and FY23 shows that there is a clear rightward shift in the income distribution curve signifying people in lower income brackets are increasing their income to converge towards their share in population. The bell-shaped curve for AY24 speaks more!! In FY14, the share of the top one per cent in total income was 1.64 per cent, which fell to 0.77 per cent in FY21. Furthermore, tax buoyancy of 1.1 alongside falling cost of collection shows better compliance and hence must not be misread as rising inequality. If India's official tax data shows improving progressivity, and large-scale consumption surveys indicate a sustained reduction in inequality, then it is worth asking why WID estimates tell such a different story. To argue that India remains deeply unequal based solely on selectively elevated income estimates is much like claiming the country lacks water because Rajasthan faces water scarcity. Inequality, like deprivation, is not monolithic—it varies across dimensions, regions, and measurement tools but that does not invalidate the broader progress being made. Any evaluation that ignores these dynamics in favour of a narrow, partial view risks obscuring the very progress it seeks to critique. As we move forward, two takeaways are critical. First, improved reporting is not the same as increased disparity—and we must resist reacting to shadows cast by better data. Second, and most importantly, welfare economics must always return to its core question: what improves the lived experience of the bottom half? In that, India's story over the past decade is less about divergence at the top and more about convergence at the base—quiet, broad, and measurable in the resources people use. (The authors are a member of the 16th Finance Commission and Group Chief Economic Advisor, State Bank of India and the other an Economist at State Bank of India. Views are personal)
Mint
10-07-2025
- Business
- Mint
Himanshu: Don't misread World Bank estimates to show low inequality in India
After declaring that India has almost eliminated extreme poverty, the government's Press Information Bureau (PIB) has picked up another set of estimates from the World Bank. This PIB release last week used the Bank's estimates of Gini coefficient, a measure of inequality, to declare that India is now the fourth most equal country in the world. These estimates are not new. They were part of the Bank's release a month ago along with its poverty estimates. The PIB is right on the rank of India among all 177 countries for which Gini data is available on the Bank's Poverty and Inequality Platform (PIP). But what the PIB did not mention was that the Bank itself cautions against comparing Gini numbers from consumption surveys with those from income surveys. The PIP's Gini of 104 countries is based on consumption surveys, but for the other 73, it is based on income surveys. Anyone looking at cross-country (or even within-country) comparisons of inequality should know that the two are not comparable. Also Read: Himanshu: The World Bank's revision of its poverty estimates is befuddling Typically, a consumption inequality Gini is 7-14 percentage points lower than the same population's income inequality Gini on a scale of 0-100, where 100 represents complete inequality (one person or home consumes or earns everything). While we have no comparable data available in India from official income surveys, income inequality estimates for comparable years from India Human Development Surveys (IHDS) suggest a Gini that's at least 20 percentage points greater than consumption inequality. The latest World Bank report also presents income inequality estimates from the World Inequality Database, which shows India's income inequality rising sharply from a Gini of 52 in 2004 to 62 in 2023. This actually places India as the second most unequal country after South Africa. The primary reason for consumption inequality being lower is that unlike income, it is a smoothed variable and does not include savings, which are likely to be substantial for households in the upper half of the distribution. Most countries in the PIP database that report consumption inequality are low-income or low middle-income countries, whereas the reported Gini for most upper- and high-income countries is based on income. Also Read: The poverty line has moved but have basic vulnerabilities in India eased? But, even if we look only at consumption inequality, the World Bank reports India's consumption Gini at 25.5, which is 4 percentage points lower than the consumption Gini for India at 29.5 found by the National Statistics Office for 2022-23. Based on this data, India ranks 18th among countries with comparable consumption inequality and 29th among all countries. India's consumption Gini at 29.5 is similar to those of Bhutan (28.5), Pakistan (29.6), Nepal (30) and China (30.4). But why did the Bank adjust India's consumption inequality to 25.5? It included imputed food transfers and also free textbooks, uniforms and footwear given away to the poor, but excluded the expenditure on durables and other big-ticket purchases (such as of jewellery) of better-off households. It also excluded hospitalization costs and rental payments. The net impact has been a significant lowering of the expenditure of richer households along with an increase in that of the poor. This adjustment is new and had not been attempted for India in all the previous times that the Bank used Indian consumption expenditure data. Riding piggyback on World Bank estimates to show India as a low-inequality country goes against the data evidence, which suggests not only high income-inequality, but also a significant proportion of the population in a precarious condition. It also goes against NSO estimates. Rather than stand by its official statistics and question the Bank's arbitrary adjustments, the government has endorsed them, exposing its data handouts to criticism. Also Read: Mint Quick Edit | Poverty isn't widespread but prosperity needs to be For the World Bank, these adjustments without wider consultations raise questions on the credibility of its PIP database. Even though it notes that the Household Consumption Expenditure Survey 2022-23 is not comparable, it uses it in its PIP database. Further, making these adjustments only for India affects inter-country comparisons. It has been under a cloud of doubt ever since Paul Romer, a Nobel Prize winner and former chief economist of the World Bank, resigned in protest against political manipulation to suit national governments with its Ease of Doing Business rankings. While this may not be the case here, its moves do not help restore confidence in its data for international comparisons. The author is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi.
Time of India
08-06-2025
- Business
- Time of India
Despite World Bank raising threshold, India achieves big dip in extreme poverty
NEW DELHI: India's extreme poverty rate has fallen sharply over the past decade after the World Bank updated its international poverty line definition and included updated data in its June upgrade of the methodology. Based on the update, the latest World Bank data showed that the extreme poverty rate had declined from 27.1% in 2011-12 to 5.3% in 2022-23. The number of people living in extreme poverty also fell sharply during this period from 344.47 million in 2011-12 to 75.24 million in 2022-23. This would mean that nearly 270 million were lifted out of extreme poverty during the same period. In a blog, the World Bank said that the international poverty line for low-income countries has been raised to $3 per person per day from the existing $2.15 per person per day, and for lower middle-income countries it's changed from $3.65 to $4.20 per day and for upper middle-income countries it went up from $6.85 to $8.40. Given India's inflation rate, between 2017 and 2021, a revised extreme poverty line of $3 would constitute a 15% higher threshold than $2.15 expressed in 2021 prices and result in a 5.3% poverty rate in 2022-23. A new LMIC line of $4.20 would imply a 5% lower threshold for poverty than $3.65 adjusted in 2021 prices and yield a poverty rate of 23.9%, according to the World Bank. Using the new poverty line for low middle income countries (LMIC), which is at $4.20 per day per person, India's poverty rate fell to 23.9% in 2022-23 from 57.7% in 2011-12. The number of people in extreme poverty was down from 732.48 million in 2011-12 to 342.32 million in 2022-23, according to the data available on the World Bank's Poverty and Inequality Platform. Free and subsidised food transfers supported poverty reduction, and the rural-urban poverty gap narrowed. The five most populous states account for 54% of the extremely poor, it had said. According to the poverty and equity brief published by World Bank in April, extreme poverty (living on less than $2.15 per day) fell from 16.2% in 2011- 12 to 2.3% in 2022-23, lifting 171 million people above this line. Rural extreme poverty dropped from 18.4% to 2.8% , and urban from 10.7% to 1.1% , narrowing the rural-urban gap from 7.7 to 1.7 percentage points-a 16% annual decline. The poverty report had also said India has transitioned into the lower-middle-income category. Using the $3.65 per day LMIC poverty line, poverty fell from 61.8% to 28.1%, lifting 378 million people out of poverty. Rural poverty dropped from 69% to 32.5%, and urban poverty from 43.5% to 17.2%, reducing the rural-urban gap from 25 to 15 percentage points with a 7% annual decline, the April report had said. The updated World Bank data is expected to come as a shot in the arm for the govt and bolster its record of handling the economy and pursuing policies to push inclusive growth and lift millions out of poverty. Last year, Niti Aayog CEO BVR Subhramanyam had indicated that the poverty level could be less than 5% based on preliminary estimates on the household consumption expenditure (HCES) data released by the statistics office. World Bank has said that in recent years, the scope and quality of information provided by household surveys has improved enormously, particularly in low-income and lower-middle-income countries, offering a clearer view into people's welfare and day-to-day lives. Several research papers have also indicated the reduction in extreme poverty over the last decade thanks to robust growth. A survey released last year estimated poverty to have declined to 8.5% from 21% in 2011-12 and pointed out that chronic poverty has come down but there is a significant proportion of people who can slip back into poverty due to "accident of life". World Bank, which introduced the international poverty line (IPL) in 1990, has undertaken several updates to include changing prices and costs, and the latest update was undertaken on June 5. The first update to IPL happened in 2001, with subsequent revisions in 2008, 2015, 2022, and more recently this month. This latest update, which also applies to the poverty lines for middle-income countries, follows the release last year of a new set of PPPs based on prices collected in 2021 by the International Comparison Programme. It also reflects changes in national poverty lines, which is a big reason for the increase, especially for the line that tracks extreme poverty, according to the World Bank.
Time of India
07-06-2025
- Business
- Time of India
Despite West Bengal raising threshold, India achieves big dip in extreme poverty
NEW DELHI: India's extreme poverty rate has fallen sharply over the past decade after the World Bank updated its international poverty line definition and included updated data in its June upgrade of the methodology. Based on the update, the latest World Bank data showed that the extreme poverty rate had declined from 27.1% in 2011-12 to 5.3% in 2022-23. The number of people living in extreme poverty also fell sharply during this period from 344.47 million in 2011-12 to 75.24 million in 2022-23. This would mean that nearly 270 million were lifted out of extreme poverty during the same period. In a blog, the World Bank said that the international poverty line for low-income countries has been raised to $3 per person per day from the existing $2.15 per person per day, and for lower middle-income countries it's changed from $3.65 to $4.20 per day and for upper middle-income countries it went up from $6.85 to $8.40. Given India's inflation rate, between 2017 and 2021, a revised extreme poverty line of $3 would constitute a 15% higher threshold than $2.15 expressed in 2021 prices and result in a 5.3% poverty rate in 2022-23. A new LMIC line of $4.20 would imply a 5% lower threshold for poverty than $3.65 adjusted in 2021 prices and yield a poverty rate of 23.9%, according to the World Bank. Using the new poverty line for low middle income countries (LMIC), which is at $4.20 per day per person, India's poverty rate fell to 23.9% in 2022-23 from 57.7% in 2011-12. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Perdagangkan CFD Emas dengan Broker Tepercaya IC Markets Mendaftar Undo The number of people in extreme poverty was down from 732.48 million in 2011-12 to 342.32 million in 2022-23, according to the data available on the World Bank's Poverty and Inequality Platform. Free and subsidised food transfers supported poverty reduction, and the rural-urban poverty gap narrowed. The five most populous states account for 54% of the extremely poor, it had said. According to the poverty and equity brief published by World Bank in April, extreme poverty (living on less than $2.15 per day) fell from 16.2% in 2011- 12 to 2.3% in 2022-23, lifting 171 million people above this line. Rural extreme poverty dropped from 18.4% to 2.8% , and urban from 10.7% to 1.1% , narrowing the rural-urban gap from 7.7 to 1.7 percentage points-a 16% annual decline. The poverty report had also said India has transitioned into the lower-middle-income category. Using the $3.65 per day LMIC poverty line, poverty fell from 61.8% to 28.1%, lifting 378 million people out of poverty. Rural poverty dropped from 69% to 32.5%, and urban poverty from 43.5% to 17.2%, reducing the rural-urban gap from 25 to 15 percentage points with a 7% annual decline, the April report had said. The updated World Bank data is expected to come as a shot in the arm for the govt and bolster its record of handling the economy and pursuing policies to push inclusive growth and lift millions out of poverty. Last year, Niti Aayog CEO BVR Subhramanyam had indicated that the poverty level could be less than 5% based on preliminary estimates on the household consumption expenditure (HCES) data released by the statistics office. World Bank has said that in recent years, the scope and quality of information provided by household surveys has improved enormously, particularly in low-income and lower-middle-income countries, offering a clearer view into people's welfare and day-to-day lives. Several research papers have also indicated the reduction in extreme poverty over the last decade thanks to robust growth. A survey released last year estimated poverty to have declined to 8.5% from 21% in 2011-12 and pointed out that chronic poverty has come down but there is a significant proportion of people who can slip back into poverty due to "accident of life". World Bank, which introduced the international poverty line (IPL) in 1990, has undertaken several updates to include changing prices and costs, and the latest update was undertaken on June 5. The first update to IPL happened in 2001, with subsequent revisions in 2008, 2015, 2022, and more recently this month. This latest update, which also applies to the poverty lines for middle-income countries, follows the release last year of a new set of PPPs based on prices collected in 2021 by the International Comparison Programme. It also reflects changes in national poverty lines, which is a big reason for the increase, especially for the line that tracks extreme poverty, according to the World Bank.
Indian Express
06-06-2025
- Business
- Indian Express
At World Bank's raised poverty line of $3 a day, extreme poverty rate falls to 5.3% in 2022-23 from 27.1% in 2011-12
With the World Bank raising its threshold poverty line to $3 a day (daily consumption of less than $3) from the earlier $2.15 a day, the extreme poverty rate for India declines sharply to 5.3 per cent in 2022-23 from 27.1 per cent in 2011-12. In absolute terms, people living in extreme poverty fell from 344.47 million to just 75.24 million, latest data from the World Bank shows. At $2.15 daily consumption — the earlier poverty line based on 2017 prices— the share of Indians living in extreme poverty is 2.3 per cent, which is significantly lower than 16.2 per cent in 2011-12, according to the World Bank's estimates. The number of people living below the $2.15-per-day poverty line is recorded at 33.66 million in 2022, down from 205.93 million in 2011. Despite the World Bank revising its extreme poverty line to adjust for global inflation in 2021 prices, India seems to have fared well, with the poverty numbers holding good. At $3 a day threshold, India's extreme poverty rate for 2022-23 rises from 2.3 per cent (at a poverty line of $2.15 a day) to 5.3 per cent, the World Bank has estimates. Adjusting the earlier $2.15-per-day line for domestic inflation from 2017 to 2021, according to sources, brings the threshold poverty line to roughly $2.60—still lower in real terms than the new $3 a day benchmark. The share of Indians living below the revised lower-middle-income category (LMIC) poverty line of $4.20 per day (from $3.65 in 2017 prices) also fell from 57.7 per cent in 2011-12 to 23.9 per cent in 2022-23. In absolute numbers, people living under the revised LMIC poverty line dips from 732.48 million to 342.32 million in a period of 11 years. The World Bank estimates India's population at 1438.07 million in 2023, using its World Development Indicators database and the official Household Consumption Expenditure Survey. Based on the earlier LMIC line of $3.65/ day, India's poverty rate falls from 61.8 per cent to 28.1 per cent, with around 401 million Indians living below the $3.65/day line in 2022. Using the revised LMIC poverty line of $4.20 per day in 2021 prices, India's poverty rate drops to 23.9 per cent from 28.1 per cent in 2022-23. This may seem counter-intuitive, but sources said this is because the new threshold is about 5 per cent lower for India than the inflation-adjusted equivalent of the earlier $3.65 benchmark. When adjusted for domestic inflation between 2017 and 2021, the previous $3.65 line would be roughly $4.40 in 2021 prices, making the revised $4.20 line effectively a lower bar for India. Poverty rates for 2023-24 will be released in October under its Poverty and Inequality Platform (PIP). Sources in the government said these numbers have not been arrived at internally too. Under the $3.65-per-day LMIC line (in 2017 prices), rural poverty fell from 69 per cent in 2011-12 to 32.5 per cent in 2022-23, while urban poverty dropped from 43.5 per cent to 17.2 per cent. The gap by education level was even starker—35.1 per cent of Indians over 16 without any schooling lived below the poverty line in 2022-23, compared to just 14.9 per cent among those with a post-secondary education. According to the World Bank's multidimensional poverty index (MPI), non-monetary poverty in India declined from 53.8 percent in 2005-06 to 15.5 per cent in 2022-23. The index comprises six indicators, namely consumption or income, educational attainment, educational enrolment, drinking water, sanitation, and electricity. The NITI Aayog has estimated that India's population living in multidimensional poverty fell to 11.28 per cent in 2022-23 from 29.17 per cent in 2013-14. Data in the Household Consumption Expenditure Survey (HCES) 2023-24 also indicates a rise in monthly consumption in India. In 2011-12 prices, rural average monthly consumption spending per person increased to Rs 2,079 in 2023-24 from Rs 1,430 in 2011-12, a rise of 45.4 per cent. Urban average monthly consumption expenditure increased by 38 per cent to Rs 3,632 per person from Rs 2,630. Aggam Walia is a Correspondent at The Indian Express, reporting on power, renewables, and mining. His work unpacks intricate ties between corporations, government, and policy, often relying on documents sourced via the RTI Act. Off the beat, he enjoys running through Delhi's parks and forests, walking to places, and cooking pasta. ... Read More
