South Asia
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Date of Event:
Feb 6, 2025
A recent paper, referring to the Household Consumption Expenditure Survey (HCES) 2022-23 of the Government of India (GoI), has debunked the official claim that poverty has substantially declined. Titled "Poverty in India: The Rangarajan Method and the 2022–23 Household Consumption Expenditure Survey", the paper—authored by scholars CA Sethu, LT Abhinav Surya, and CA Ruthu—states that "more than a quarter of India’s population falls below the poverty line."
The paper highlights issues with the methodology adopted by the GoI, which estimates poverty at just 5% based on "positive trends such as a 2.5-fold surge in consumption in both rural and urban areas." However, relying on the methodology proposed by the Expert Group to Review the Methodology for the Measurement of Poverty, chaired by Dr. C. Rangarajan in 2014, the authors estimate that 26.4% of India's population is below the poverty line (BPL)—27.4% in rural areas and 23.7% in urban areas.
The paper points out that the 5% poverty estimate based on HCES 2022-23 data was declared by B.V.R. Subrahmanyam, CEO of the GoI think tank NITI Aayog. The method used to arrive at this low figure involved adjusting the poverty line for 2011-12 for inflation using the Consumer Price Index (CPI) and applying it to HCES 2022-23 data. Ironically, the same method was used by scholars C. Rangarajan and S. Mahendra to arrive at a tentative estimate of 10.8% BPL.
According to the paper, the 2014 Expert Group defined the poverty line based on a consumption basket that included food (ensuring adequate nourishment), essential non-food items (such as education, clothing, transport, and shelter), and other “behaviorally determined” non-food expenditures. The authors used this methodology not only with HCES 2022-23 data but also with other official GoI surveys, such as the Periodic Labour Force Survey 2022-23 (PLFS 2022-23) and nutrition intake norms prescribed by the Indian Council of Medical Research – National Institute of Nutrition in 2020 (ICMR-NIN 2020).
Using the Expert Group (2014) method, they generated a new poverty line. Summarizing their approach, they state:
- Nutritional Requirements: The average calorie, protein, and fat requirements are calculated based on ICMR norms, differentiated by age, gender, and activity levels in rural and urban populations.
- Food Basket: A food basket meeting these nutritional norms is determined by analyzing the consumption patterns of specific income groups. The average monthly per capita consumption expenditure (MPCE) on food in these groups is used to define the food component of the poverty line.
- Essential Non-Food Items: The median expenditure on essential non-food items (education, clothing, shelter, and transport) is determined and added to the poverty line basket as a normative requirement.
- Other Non-Food Expenditures: Additional non-food expenses observed among groups meeting nutritional requirements are incorporated. The sum of these three components determines the new poverty line, expressed in terms of MPCE. This calculation is conducted separately for rural and urban areas. State-specific poverty lines are then derived using a relative Fisher Index.
- Rs 2,515 per capita per month for rural areas
- Rs 3,639 per capita per month for urban areas
Providing evidence against the claim that poverty has declined to 5%, senior scholar Payal Seth, interpreting the paper, states:
"The per capita energy consumption for the poorest quartile in rural India declined by 2.6% between 2011–12 and 2022–23, signaling that rising nominal incomes have not translated into better nutrition. This directly contradicts claims of substantial poverty reduction, as improving nutrition is a critical indicator of poverty alleviation."
The paper argues that adjusting a prior poverty line using CPI is flawed for two key reasons:
- Outdated Base Weights: The CPI is calculated using old base weights for items in the consumption basket. Since new expenditure data has not been incorporated for over a decade, these weights no longer reflect current consumption patterns.
- CPI is Not a Suitable Instrument to Measure Poverty: The consumption patterns and price experiences of people below the poverty line differ significantly from those above it, making CPI adjustments inadequate for poverty tracking.
Furthermore, an analysis of two wage rate datasets—the Wage Rates in Rural India and the Periodic Labour Force Survey—suggests that real wage rates stagnated between 2014-15 and 2022-23. Data from the NSSO’s Annual Survey of Unincorporated Sector Enterprises also indicates a struggling informal sector, with a declining number of enterprises and stagnant wages.
Additionally, the scholars note that wages at the lower end of the formal economy, such as daily earnings of factory floor workers, grew by only 0.6% per annum at constant prices between 2002-03 and 2021-22, based on various rounds of the Annual Survey of Industries.
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DevelopmentEconomyInequityLivelihood
Thursday, February 06, 2025
