High growth means fall in poverty

The poverty ratio in India declined to 21.9 per cent in 2011/12 from 37.2 per cent in 2004/05, a drop of around 15 percentage points on account of a sharp rise in individual consumption, even after accounting for inflation.

Typically, poverty estimates are made at five-year intervals and the last one should have been in 2009/10. However, as the economy was adversely affected by a drought in 2009, which would have presented a distorted picture, the poverty estimate was worked out again in 2011/12.

The percentage of people below the poverty line in 2011/12 has been estimated as 25.7 per cent in rural areas and 13.7 per cent in urban areas. The respective ratios for the rural and urban areas were 41.8 per cent and 25.7 per cent in 2004/05.

During the 11-year period 1993/94 to 2004/05, the average decline in the poverty ratio was 0.74 percentage points per year. It accelerated to 2.18 percentage points per year during the seven-year period 2004/05 to 2011/12.

Growing rural prosperity in the last few years has helped.

While addressing the ASSOCHAM annual general meeting last Friday, Prime Minister Manmohan Singh had pointed out that agriculture did much better in the 11th Plan (2007/12) than in the 10th Plan. This is reflected in real per capita rural consumption rising at 2.9 per cent per year between 200405 and 2011/12 compared with only one per cent between 1993/94 and 2004/05. He also pointed out that rural real wages have also risen much faster (6.8 percent per year in the 11th Plan as compared to an average of 1.1 percent per year in the ten years preceding it).

Eventually, all explanations of the sharp reduction in overall poverty levels, both in percentage terms and in absolute number of poor people, go back to economic growth. The last eight years saw the economy grow over nine per cent a year on four different occasions. The consequent surge in tax collections helped support much higher support prices for agricultural produce, which has shown up in fall in poverty level even in states with limited industry such as Tripura, Orissa and Sikkim.

There were exceptions, of course - surprising ones.

Chandigarh and Arunachal Pradesh actually saw an increase in their poverty ratio by 10.2 and 3.3 percentage points respectively between 2004/05 and 2011/12. According to Dr. Pronab Sen, chairman, National Statistics Commission, "in large urban areas a part of the poverty is driven by migration."

This has been the trend over the last few decades.

Goa has the lowest percentage of people living below the poverty line at 5.1 per cent followed by Kerala (7.1 per cent) and Himachal Pradesh (8.1 per cent). "These states are not high on industrialisation but have high human development. Moreover, there is an even distribution of income in these states which contributes to low levels of poverty," says Sen.