According to a report released by SBI Research on January 3, India’s rural poverty ratio has seen a remarkable decline, dropping to 4.86 per cent in the financial year 2023-24 from 25.7 per cent in 2011-12. Meanwhile, urban poverty has also decreased, falling to 4.09% from 4.6% during the same period.
The report stated, “At an aggregate level, we estimate that poverty rates in India are now likely to be between 4 per cent and 4.5 per cent, with extreme poverty nearly eliminated.”
The report states, “The steep decline in rural poverty can be attributed to increased consumption growth in the lowest 0-5 percent income group, along with substantial government support. This support has been crucial, as we also observe that fluctuations in food prices significantly affect not only food expenditure but overall spending as well.”
According to the report, based on the fractile distribution for FY 2023-24, the poverty rate in rural areas stands at 4.86 per cent, while in urban areas it is 4.09 per cent. These figures represent a notable decrease from the previous year’s estimates, with rural poverty at 7.2 per cent and urban poverty at 4.6 per cent in FY 2022-23.
The report notes that these figures may undergo slight revisions once the 2021 census is finalised and the updated Rural-Urban population distribution is released. It suggests that urban poverty could potentially decrease further as a result.
According to the report, one of the key factors contributing to the narrowing income gap between rural and urban areas, as well as the reduction in income disparity within rural communities, is the significant improvement in physical infrastructure. This progress is transforming rural mobility and playing a pivotal role in shaping a new economic narrative for rural areas.
The SBI report highlights that the gap between rural and urban monthly per capita consumption expenditure (MPCE) has narrowed to 69.7 per cent in FY24, down from 88.2 per cent in 2009-10. This significant reduction is largely attributed to government initiatives such as Direct Benefit Transfers, improvements in rural infrastructure, efforts to boost farmers’ income, and substantial advancements in rural livelihoods.
The report noted that food inflation has a greater dampening effect on consumption demand in lower-income states compared to higher-income ones. This indicates that rural populations in low-income states tend to be more risk-averse than their counterparts in higher-income states. The report also estimated that November 24 inflation because of the new weights would be 5.0 per cent against 5.5 per cent.
The report highlighted that most high-income states exhibit a savings rate higher than the national average of 31 per cent, whereas Uttar Pradesh and Bihar report lower savings rates, likely due to significant outward migration.
The poverty ratio estimates for 2023-24 are based on the newly calculated poverty lines of Rs 1,632 for rural areas and Rs 1,944 for urban areas in the same period.
Starting with the 2011-12 poverty line estimates of Rs 816 for rural areas and Rs 1,000 for urban areas (based on MRP consumption), the new poverty line was adjusted for decadal inflation and an imputation factor derived from the NSSO report.
According to the report, rural consumption is rapidly narrowing the gap with urban consumption, with the difference shrinking from 88.2 per cent in 2004-05 to 69.7 per cent in 2023-24.
The report highlights that rural average consumption has surged, largely driven by government initiatives aimed at supporting the bottom of the pyramid. Approximately 30 per cent of the rural Monthly Per Capita Consumption Expenditure (MPCE) can be attributed to efforts such as Direct Benefit Transfers (DBT), the development of rural infrastructure, boosting farmers’ income, and significantly improving rural livelihoods.
The report indicates that the gap between rural and urban Monthly Per Capita Consumption Expenditure (MPCE) is narrowing across all states, regardless of income category. Notably, it highlights that states once considered laggards, such as Bihar and Rajasthan, are making the most significant strides in closing the rural-urban consumption gap.
Consumption patterns have shifted from primarily food items to a greater focus on non-food products, reflecting an improved standard of living. There has been an increase in the purchase of manufactured goods, such as toiletries and clothing, indicating rising consumer affluence.
Over the past 12 years, the shift in consumer preferences has been evident in both rural and urban areas.
The infrastructure projects driving prosperity include the expansion of 4/8 lane National Highways, covering a total length of 150,000 km, along with enhanced ‘loops of connectivity’ that enable seamless real-time two-way access.
The Pradhan Mantri Gram Sadak Yojana (PMGSY) has significantly improved rural connectivity, with over 700,000 km of roads constructed in rural areas. The report highlights that enhanced transportation and seamless connectivity have transformed consumption patterns, reshaping buying and selling behaviours.
