Poverty in India is on the rise again

Context: For the first time since India began collecting data on poverty in 1973, we have seen an increase in absolute numbers of poor between 2012-13 and 2019-20.

A reversal in India’s poverty reduction trajectory

• 1973-2004 – Phase of consistent reduction:
  • Poverty rate was 54.9% in 1973-4, 44.5% in 1983-84, 36% in 1993-94 and 27.5% in 2004-05. This was in accordance with the Lakdawala poverty line.
  • Between 1973 and 1993: Absolute number of poor remained constant at 320 million, despite a significant population increase.
  • Between 1993 and 2004: Absolute number of poor fell by a marginal number (18 million) from 320 million to 302 million, during a period when GDP growth rate had picked up after economic reforms.
• 2005-2012 – India’s ‘dream run’ of growth and poverty reduction: Accompanied by a high growth rate of 8% per annum during the period, the number of poor fell by a staggering 133 million.
  • Rise in the incidence of poverty since 2011-12: A total increase of the absolute poor of 70 million.
  • Absolute number of poor has risen from 217 million in 2012 to 270 million in 2019-20 in rural areas and from 53 million to 71 million in the urban areas.

Contributory factors to the rise in poverty

• Flawed policies: Such as demonetisation followed by a poorly planned and hurriedly introduced Goods and Services Tax, delivering blows to MSMEs.
• Loss of growth momentum: All engines of growth retarded.
  • Private investment fell from 31% in 2013-14 to 28% of GDP by 2019-20.
  • Exports fell: Exports, which had never fallen in absolute dollar terms since 1991, actually fell below the 2013-14 level ($315 billion) for five years.
  • Public expenditure was constrained, consumption stagnated, and household savings rates fell.
  • Joblessness increased to a 45-year high by 2017-18 and youth (15-29 years of age) saw unemployment triple from 6% to 18% between 2012 and 2018.
  • Real wages did not increase for casual or regular workers over the same period.