Is poverty in India, particularly in rural areas, declining? A new analysis by the State Bank of India's (SBI) research department predicts a large drop in the poverty ratio, which it attributes to stronger consumption growth helped by significant government support among the lowest 0-5 percent decline.

According to the study, based on the 2023-24 fractile distribution, the sample proportion of poverty in rural areas was 4.86 percent in the fiscal year ending March 2024, which is much lower than the previous year's rural poverty predictions of 7.2 percent. Similarly, it forecasts urban poverty at 4.09 percent in 2023-24, down from 4.6% in 2022-23.

While these figures may change slightly after the 2021 census and new rural-urban population shares are revealed, economists anticipate urban poverty will fall even lower.  On an aggregate level, it believes India's poverty rates might be in the 4.0-4.5% range, with "minimal existence" of extreme poverty.

"The difference in monthly per capita consumption expenditure (MPCE) between rural and urban areas has decreased from 88.2 percent in 2009-10 to 69.7 percent.The government's measures in direct benefit transfers (DBT), creating rural infrastructure, augmenting farmer income, and significantly enhancing rural livelihoods have contributed to this," according to the report.

Furthermore, as per SBI's report, improved physical infrastructure is creating a new story in rural mobility, which is one of the causes for the reducing horizontal income disparity between rural and urban areas, as well as the vertical income gap within rural income classes.

Importantly, the research observed that states that were previously deemed laggards were exhibiting the most improvement in the rural-urban gap.

It also highlighted that, in general, rising inflation caused a decrease in monthly per capita consumption spending. "The impact of the rise in food prices is severe on rural consumption demand, particularly for low-income states," according to the State Bank of India research report.

Beginning with the 2011-12 (based on MRP consumption) poverty line estimate of Rs 816 in rural areas and Rs 1000 in urban areas, the new poverty line was adjusted for decadal inflation and an imputation factor derived from the NSSO (National Sample Survey Office) report. The new anticipated poverty level for 2023-24 is Rs 1,632 in rural regions and Rs 1,944 in urban areas.