India, among the world’s biggest economies, has also made significant strides in reducing poverty, especially extreme poverty in recent years. According to the latest World Bank report, India has managed to achieve one of the fastest poverty declines in the world – in both monetary and non-monetary dimensions.Garibi hathao has been a slogan for decades, and now with extreme poverty falling from 27.1% to 2.6% between 2011 and 2023, the question is how far India has come in its fight against poverty, and how much further it still needs to go.
India’s remarkable poverty decline in numbers
How is poverty defined? Poverty in India, as well as in assessments by multilateral institutions, is measured with reference to specified poverty lines or thresholds.
Sharp Decline In Poverty Rate
The World Bank currently defines the international extreme poverty line at $3.00 per person per day in 2021 purchasing power parity (PPP) terms. According to the World Poverty Clock, extreme poverty may be considered eliminated when the poverty headcount ratio falls below 3%.With the World Bank estimating India’s extreme poverty rate at about 2% in 2024, India can, on this measure, be considered to have crossed that threshold.Between 2011 and 2023, the proportion of Indians living below the Lower Middle-Income Country poverty threshold of $4.20 a day (2021 PPP) dropped from 57.7% to 16.1%. This decline lifted an estimated 496 million people out of poverty. Over the same period, extreme poverty, measured against the $3-a-day threshold, fell from 27.1% to 2.6%.
Inequality falls
“Poverty is projected to continue declining, albeit more gradually, with the poverty rate at the $4.20/day line expected to fall from 14.2 per cent in 2026 to 12.1 per cent by 2028,” World Bank has said in its report.Not just that, India has also recorded big improvements in non-monetary indicators of poverty. According to the Oxford Poverty and Human Development Initiative’s (OPHI) Multidimensional Poverty Index (MPI), the poverty rate fell from 53.8% in 2005-06 to 16.4% in 2019-21. The World Bank’s MPI measure put the rate at 15.5% in 2022-23.“As poverty declined, it became increasingly concentrated among households with lower education, fewer assets, limited access to stable employment, and higher dependency ratios. Wage disparities, however, remain pronounced, as median earnings among the top 10 per cent of workers were about 13 times those of the bottom 10 per cent in 2023,” the report says.
How did India reduce poverty significantly?
The World Bank says progress was mainly driven by strong consumption growth, rising employment, especially among women, and expanded social transfers, including food subsidies. India’s poverty reduction story is one of both convergence and concentration.“Households in both rural and urban areas experienced substantial welfare gains, with faster progress in rural India significantly narrowing the rural-urban gap. Yet many of the households that remain poor continue to live in rural areas, where productivity is lower and access to higher-quality non-farm employment opportunities remain more limited,” the report says.
Poverty At Different Lines
Experts say the decline in poverty reflects a combination of income and employment growth, together with an extensive social protection system, including subsidised food provision and rural employment support.DK Srivastava, Chief Policy Advisor, EY India says rural employment guarantee programme, earlier known as MGNREGA and presently referred to as VB-G-RAM-G, has also played an important role.“India’s domestic approach to measuring poverty has traditionally used consumption thresholds consistent with minimum nutritional requirements and expenditure on specified non-food items. In 2011-12, the Rangarajan Committee re-estimated these poverty thresholds, with separate poverty lines for rural and urban areas and variations across states. These thresholds were substantially higher than the international extreme poverty line,” he explains.Recent studies have updated the Rangarajan Committee-based poverty lines to 2022-23.For example, a recent RBI study provides poverty estimates for 19 states using updated rural and urban poverty thresholds.“On a population-weighted basis across these states, the poverty headcount ratio declined from 31.1% to 6.7% in rural areas and from 26.9% to 6.8% in urban areas,” he tells TOI, adding that several factors have contributed to this substantial decline.Apart from broader income and employment growth, important policy interventions include the rural employment guarantee programme and the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY).While Direct Benefit Transfer allows the government to transfer welfare benefits, subsidies and other payments directly to beneficiaries’ bank accounts, the Pradhan Mantri Garib Kalyan Anna Yojana (PM-GKAY) aims to provide free foodgrains to eligible households.State governments have also implemented income-transfer and subsidy programmes targeted at lower-income households.“The free food scheme has released resources for spending on other goods and services. Further, we have created new low paying but still income generating jobs in new sectors which have been booming like ecommerce, logistics and construction. This has added to income and spending power,” explains Madan Sabnavis, Chief economist, Bank of Baroda.“Governments have paid attention to welfare which is needed at a time when the private system is unable to create jobs for all,” he adds.Yet another major factor has been the accelerated capital expenditure by the government over the years.
Poverty By Group as per World Bank report
“This has been a significant contributor to impacting poverty. It has connected farms to markets and has led to better realisations for the farmers,” says Ranen Banerjee, Partner and Leader, Economic Advisory, PwC India.Besides, it has allowed mobility of labour to urban areas for casual labour besides directly generating construction jobs.Then, there are the multiplier effects of sectoral growth.“The growth of the service sector and services exports have also created several organised sector jobs that has led to several multiples of unorganised sector jobs and this has also supported poverty alleviation,” Ranen Banerjee tells TOI.
Has this translated into a better standard of living?
Experts say there is little doubt that the standard of living has gone up.“When free food is given, people have money to spend on other goods which would have otherwise gone for food. Similarly cash transfers and free travel have helped women to go out and work and led to better utilization of income. Therefore, there has been genuine improvement,” Madan Sabnavis tells TOI.Changes in the composition of household consumption provide one indication that the decline in poverty has been accompanied by broader improvements in living standards.DK Srivastava explains that one way to assess this is through the changing composition of private final consumption expenditure (PFCE).Food, beverages and tobacco accounted for nearly 60% of total PFCE in the early 1960s; by the 2020s, their share had fallen to less than half.At the same time, the share of non-food consumption has increased, including spending on transport, education, health, and miscellaneous goods and services.“This shift from basic necessities towards a more diversified consumption basket is generally consistent with rising household incomes and improved living standards,” he says.In fact, the structural shift has been particularly noticeable over the past two-and-a-half decades, from around 2000-01 onwards. While changes in consumption composition alone do not capture every dimension of household welfare, they provide supporting evidence that improvements in living standards have accompanied the measured decline in poverty.
Multidimensional Poverty Components
What’s the road ahead?
While the decline in poverty is an important achievement, as they famously say: one can’t afford to rest on our laurels.India, too, has a long road ahead.The World Bank report also notes that poverty has also become increasingly concentrated geographically.“While living standards improved across most states, households in a contiguous belt stretching from Uttar Pradesh to West Bengal account for about 57 per cent of India’s poor population. As a result, further reductions in national poverty will increasingly depend on enabling productive employment in these states.” it says.Poverty decline and growth in jobs are two different things. And the next phase of India’s poverty alleviation programme needs to be associated with economic growth that enables higher jobs and income.Between 2017 and 2023, the number of employed people rose by approximately 134 million, which is nearly twice the increase in the working-age population.A substantial part of this expansion has come from rural women entering paid employment, increasing the number of income earners within households, the World Bank reports says.Labour market conditions have remained broadly resilient, with labour force participation and employment rates staying stable between the first quarters of FY2026 and FY2027.However, the World Bank report notes that youth unemployment rose from 14.6 to 15.9 per cent between the two quarters, particularly among rural young women.“Moreover, real earnings remained broadly unchanged with employment growth concentrated in relatively low-productivity activities,” it adds.The catch is that government-backed programmes have been a big contributor to the decline in poverty. So the next question is, can governments keep doing what they are forever?“If the food scheme is stopped, the Rs 2 lakh crore of subsidy will be withdrawn which means that people will slip down the income ladder. This is the major challenge of free cash/food. While they help a lot and can be accommodated in budgets, any cutback will risk making these people slip downwards. This is a challenge for us as we may not be having a skilled labour force in line with requirements of industry,” cautions Sabnavis.Ranen Banerjee pitches for focus on spending on public health, skilling and education to support the households to come out of the poverty trap and get into gainful employment.“The health insurance scheme is a very effective measure to prevent poorer households from falling back into the poverty trap owing to healthcare expenses derailing their upward mobility,” he tells TOI.What’s important to understand is that India’s transition to upper-middle-income status will require sustained economic growth combined with higher labour-force participation, productivity improvements, technological absorption and continued investment in human capital.The World Bank’s lower threshold for the upper-middle-income category is $4,636 per capita at market exchange rates for 2026-27.India’s per capita GDP in 2026-27 is estimated at around $2,759 at market exchange rates and $12,998 in 2021 purchasing power parity terms.Srivastava says that continuation of policies directed towards achieving developed-country status could enable India to cross the upper-middle-income threshold by the mid-2030s.Three areas would be particularly important:First, India would need to sustain real GDP growth of around 6-7% over an extended period.Second, greater participation of women in productive employment could significantly expand the effective labour force and support household incomes and economic growth.Third, India will need to manage the potential employment disruptions associated with rapid technological change, including artificial intelligence.“This will require greater investment in research and development, faster adoption of technologies already available globally, and substantial investment in skilling and re-skilling the workforce. Together, these measures can help raise productivity and incomes while ensuring that technological progress translates into broad-based employment and income gains,” the EY expert tells TOI.Robert Frost famously wrote, ‘miles to go before I sleep.’ To borrow from the poet, India still has miles to go before it is out of the woods on the poverty front.
