Forbes India 15th Anniversary Special

Poverty rate in India: Trend over the years and causes

How has the poverty rate in India shifted over the years? What are the causes of poverty in India? Let's find it all out

Published: Jul 5, 2024 11:05:09 AM IST
Updated: Jul 5, 2024 02:37:36 PM IST

Poverty in India is a complex and multifaceted issue influenced by a combination of historical, economic, social, and political factors. Several renowned economists and leaders have provided insights into the root causes of the high poverty rate in India.

Amartya Sen, the Nobel laureate economist, has highlighted the importance of addressing social inequalities and investing in education and healthcare to combat poverty in India and sustain economic development.

The 2023 Multidimensional Poverty Index Report finds over a third of all poor people in the world live in South Asia—which is around 389 million people. India contributes significantly to this number, accounting for almost 70 percent of the increase in extreme poverty.

The World Bank defines poverty using the International Poverty Line, which designates extreme poverty at $2.15 per person per day, while $3.65 falls under the lower-middle income category, and $6.85 is classified as upper-middle income.

Considering the poverty line set at $3.65, India's contribution constitutes 40 percent of the slight upward adjustment in the global poverty rate, moving from 23.6 percent to 24.1 percent.

Also Read: Explained: What is multidimensional poverty, and how does India fare?

Current Poverty Rate in India

According to research by the State Bank of India, released in February 2024, the poverty rate in the country fell to 4.5-5 percent in 2022-23. Based on the household consumption expenditure survey data the SBI research attributes the decline to government programmes initiated for the bottom of the pyramid. Household consumption expenditure survey data suggests that rural poverty came down to 7.2 percent from 25.7 percent in 2011-12, and urban poverty is down to 4.6 percent from a decade ago.

The new poverty line was Rs1,622 and Rs1,929 for rural and urban areas, respectively, as per SBI Researchers. These numbers were calculated based on the recommendations of the group of experts headed by Suresh Tendulkar, who had determined the poverty line in 2011-12.

India poverty rate over the years

Below, we have compiled a table of the poverty rate in India in past years using the poverty line of $2.15, with data sourced from the World Bank.

Year Poverty Rate in India (percent)
1977 63.11
1983 56.26
1987 50.59
1993 47.64
2004 39.91
2009 32.87
2011 22.53
2015 18.73
2017 13.37
2018 11.09
2019 12.73
2020 14.72
2021 11.9

British economic policy in India

The British economic policy in India had profound negative consequences for the Indian economy, being one of the primary reasons behind the high level of poverty rate in India.

Numerous scholars have discussed the economic exploitation or "loot" of India during British colonial rule. They point to various mechanisms through which India's wealth was extracted, including heavy taxation, discriminatory trade policies, and the draining of resources.

Dadabhai Naoroji, a strong critic of British economic policy in India, explained the financial exploitation of India under British colonial rule through the Drain Theory. According to Naoroji, the economic surplus generated in India was drained to Britain, leaving the Indian economy impoverished. He argued that this drain took various forms, including the remittance of profits to Britain, high salaries for British officials in India, and the payment for goods and services imported from Britain.

Let’s see how British economic policy in India contributed to the poverty in India:

1. Economic exploitation

The primary goal of British imperialism was to extract valuable resources for the benefit of the imperial power. Natural resources, including minerals, agricultural products, and raw materials, were exploited on a large scale. British imperialists employed coercive labour practices, including slavery and indentured servitude, to ensure a cheap workforce for their economic enterprises.

2. Imbalance in trade

The Indian economy was made a supplier of primary goods while Britain made mass-produced finished goods were dumped in Indian markets. Heavy duties were imposed on Indian products while none on Britain-made goods. This one-way free trade dealt significant damage to the Indian economy.

3. Impact on indigenous industries

British policies destroyed local industries to eliminate competition with British goods. This de-industrialisation had long-term adverse effects on economic self-sufficiency and contributed to the increase in the poverty rate in India.

4. Financial exploitation

Taxes were imposed to fund colonial administration and infrastructure projects, further straining local economies.

5. Financial integration

British imperialism contributed to the integration of India into the global economy. However, this integration was often unequal, with India dependent on the imperial power for economic stability.

6. Legacy of inequality

The economic structures established during the imperial era resulted in persistent wealth disparities. The legacies of exploitation, unequal land distribution, and social inequalities continue to impact the poverty rate in India.

Poverty in India after independence

After gaining independence, India continued to face significant challenges in overcoming poverty. The causes of poverty in India include:

1. Historical legacy

The legacy of colonial exploitation, including resource extraction and the imposition of economic structures favouring the colonisers, is one of India’s biggest causes of poverty.

2. Unequal distribution of resources

Large landholdings by a few elites contribute to poverty in India by limiting access to resources for the broader population.

3. Corruption and governance issues

Corruption in governance structures is a significant impediment to reducing the poverty rate in India. Diverting resources meant for development, embezzlement, and lack of transparency hinder effective poverty alleviation initiatives.

4. Weak institutions

The legacy of colonial rule left India with weak institutions, including legal systems, bureaucracies, and law enforcement. This impedes effective governance and contributes to the rising Indian poverty rate.

5. Dependency on primary commodities

The Indian economy continues to rely heavily on the export of primary commodities, a legacy of the colonial economic structure. This makes the economy vulnerable to external market fluctuations.

6. Social inequalities

Social inequalities, often exacerbated by historical factors such as caste systems or ethnic divisions, contribute to persistent poverty in India. Discrimination limits access to education, employment, and other opportunities for marginalised groups.

7. Population growth

Rapid population growth strains available resources and makes it challenging to achieve sustainable development. This results in high levels of unemployment and limited access to essential services, contributing to the high Indian poverty rate. India is now the world’s most populous country.

8. Global economic factors

Global economic dynamics, including trade imbalances and debt burdens, exacerbate poverty in India. Unfavourable terms of trade and economic policies imposed by powerful nations hinder local development efforts.

Frequently Asked Questions (FAQs)

1. Which is the poorest state in India?

Bihar is the poorest state in India. The causes are similar to the causes of poverty in India, including high population density, low literacy rates, inadequate infrastructure, ineffective governance, and limited industrial growth.

2. Which is the wealthiest Indian state?

Going by the GDP of Indian states in 2023-24, Maharashtra is the wealthiest.