India is now a middle-income country. The political, policy and administrative systems have to adjust to the new realities
India is perhaps no longer home to the highest number of people living in extreme poverty. Researchers at Brookings Institution say Nigeria had 87 million people living in extreme poverty in May 2018, compared to 73 million in India. They predict that the Indian number is expected to drop to around 20 million over the next four years. The World Bank defines a person as extremely poor if she is living on less than 1.90 international dollars a day, which are adjusted for inflation as well as price differences between countries.
The Brookings prediction is based on data provided by a host of international agencies. Economist Surjit Bhalla has written in The Indian Express recently that new Indian data will paint a similar picture. He says that the results of the recently concluded consumer expenditure survey conducted by the National Sample Survey Organisation—which is used to generate estimates of absolute poverty—will show that there are 50 million Indians now living below the poverty line defined by the Suresh Tendulkar committee, or one in 25. The poverty decline since the beginning of this century has been quite dramatic.
Poverty numbers have always been a source of heated debate in India and the claims that India is on the verge of winning the battle against extreme poverty sit uneasily with the current concerns about job creation or rural distress. So how believable are these estimates? An international comparison would help. China began to score massive wins against extreme poverty at the turn of the century, when its per capita income in terms of purchasing power parity (PPP) was around $4,000. It was thus very likely that India would see a similar result after it reached a similar average income level at the end of the previous decade. PPP incomes average around $7,000 right now, compared to around $2,500 in the year 2000.
Scholars who have studied the Chinese success have no doubt that rapid economic growth has been the main reason why extreme poverty could be rolled back. The centrality of economic expansion is often lost in the heated ideological debates in India. However, there were also other factors at play—the shift of people to jobs in formal enterprises, investments in human capital, relatively equal land ownership in rural areas, and targeted interventions to help the extremely poor. These allowed China to pull most of its citizens out of extreme poverty despite rising inequality.
The reduction in extreme poverty—and the debates should only be about its extent—has several implications.
First, it is time to close the tired debate about whether the economic reforms of 1991 have only helped the rich, though empirical proof will not come in the way of grand claims that poverty is actually increasing in India. Other indicators of well-being such as infant mortality and nutrition have also been improving.
Second, India will once again have to redefine what it means by poverty. Poverty lines have to be recalibrated depending on changes in income, consumption patterns and prices. The usual poverty line used in narratives is 1.90 international dollars a day, but the World Bank has two others—$3.20 per day for middle-income countries and $5.50 per day for rich countries. India is now a middle-income country, with an estimated per capita income of around $9,000 in purchasing power parity. Bhalla suggests that a poverty line of $3.20 translates into ₹75 a day, or 68% higher than the Tendulkar poverty line.
Third, the Indian political, policy and administrative systems have to adjust to the new realities of the transition to a middle- income country, in which poverty does not mean living at the edge of hunger but, rather, lack of income to take advantage of the opportunities thrown up by a growing economy. The focus of government spending should be on the provision of public goods rather than subsidies. That is easier said than done given the political economy equilibrium. Also, the rate at which economic growth translates into poverty reduction depends on what happens to inequality, or how the growth dividend is distributed.
Few would remember that India was battling the threat of widespread famine some five decades ago, when even its ability to feed a growing population was questioned. There has been a lot of progress since then. Even the very possibility of a final victory against the sort of extreme poverty that was common not so long ago is no mean achievement.