In the financial year 2024, India witnessed a significant milestone in the fight against poverty, particularly in rural areas. According to a report by SBI Research, the rural poverty ratio dropped below 5% for the first time, reaching 4.86% in FY24.
This marked a substantial improvement from the 7.2% recorded in FY23. The report, released by the government-run bank on Friday, compared this rural decline with a more modest decrease in urban areas, where the poverty ratio fell from 4.6% to 4.09% during the same period.
The rapid reduction in rural poverty has been attributed to several key factors, one of the most notable being increased consumption growth in the lower income groups, particularly those in the 0-5% decile.
This shift in income distribution led to a reduction in the overall poverty rate as more individuals moved out of poverty. The report also pointed out that the shift in the poverty line from the 5-10% decile in FY23 to the 0-5% decile in FY24 was a crucial factor in this transformation.
Enhanced physical infrastructure, particularly in rural mobility, is another significant driver of this decline. The study observed that better infrastructure has played a critical role in reducing the income gap between rural and urban areas.
It further highlighted how the growth in rural mobility has helped reduce the vertical income gap within rural communities, thus improving their overall financial conditions.
One of the major contributors to this improvement has been the rise in government scheme transfers, notably the Direct Benefit Transfer (DBT) system. According to the SBI report, around 30% of the rural monthly per capita expenditure (MPCE) can be attributed to initiatives by the government.
These initiatives include DBT transfers, rural infrastructure development, and measures to increase farmers' income. These factors have collectively helped lift rural livelihoods significantly, contributing to the decline in poverty.
The report also discussed how the poverty line has been recalculated, factoring in inflation and other economic variables. For FY24, the revised poverty line stands at Rs 1,632 for rural areas and Rs 1,944 for urban areas.
This adjustment is based on the imputation factor in the poverty line, as fixed by Professor Suresh Tendulkar’s recommendations. In comparison, the expert group led by Professor Tendulkar had set the poverty line at Rs 816 for rural areas and Rs 1,000 for urban areas in 2011-12.
Additionally, the report speculates that India's overall poverty rate may now be in the range of 4% to 4.5%. It notes that these estimates could be subject to minor revisions once the 2021 census is completed and a new rural-urban population share is released.
It is expected that the rate of urban poverty could further decline as the impact of these government interventions continues to be felt across the country.
Despite the positive trends, the report also addressed the impact of inflation on consumption patterns. Although the share of food spending in overall consumption has decreased, rising inflation has led to reduced consumption across all sectors.
This effect was more noticeable in rural areas, particularly in low-income states, where inflation had a sharper impact on household budgets. However, middle-income states have been largely responsible for sustaining the overall demand for goods and services, even in the face of higher inflation.
India's inflation has remained above 5% in recent months, which prompted the Reserve Bank of India’s Monetary Policy Committee (MPC) to maintain steady interest rates during its December meeting.
The MPC is set to meet again in February, and its decisions will continue to influence India’s economic trajectory, including the fight against poverty.
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