India’s rural-urban income gap declines sharply amid fall in poverty level: SBI Report

New Delhi: Along with the sharp decline in poverty in India, there has also been a marked reduction in the rural-urban income divide in the country, according to an SBI Research analysis of a Consumer Expenditure Survey released on Tuesday.

Rural Poverty has staged a significant 440-basis point decline since 2018-19 and Urban Poverty a 170-basis point decline post-pandemic, which shows that the government initiatives for promoting the welfare of the bottom of the pyramid are having a significant beneficial impact on rural livelihood, the report states.

Rural Poverty is now at 7.2 per cent (25.7 per cent in 2011-12 while Urban Poverty is at 4.6 per cent (13.7 per cent in 2011-12), official data show.

The report further states that India is becoming more aspirational as indicated by the increasing share of discretionary consumption (like spending on beverages, intoxicants, entertainment, durable goods, etc.) in rural and urban areas. The speed of aspiration is swifter in rural areas as compared to urban areas

The SBI report states that the difference between rural and urban monthly per capita consumption expenditure (MPCE) is now at 71.2 per cent, a rapid decline from 88.2 per cent in 2009-10. Around 30 per cent of the Rural MPCE is explained mainly due to steps taken by the government in terms of DBT transfers, investments in building of rural infrastructures, augmenting farmer’s income, all together improving the rural livelihood significantly.

Enhanced physical infrastructure is enabling two-way rural-urban mobility, which is the prime reason for the incrementally shrinking horizontal income gap between the rural and urban landscape and the vertical income gap within rural Income classes, according to the SBI report.

The states once considered laggards are showing the maximum improvement in rural and urban gap. States like Bihar, Uttar Pradesh, Madhya Pradesh are showing increasingly the impact of these factors, the report adds.

The bottom half of the rural pyramid are now having consumption patterns mostly converging to urban counterparts.

The report also states that revised MPCE weights in CPI computation could help India real GDP growth for FY24 to top 7.5 per cent.

Other highlights:

*Rural and Urban consumption are growing, on an average, at nearly the same growth rate (2.66 per cent for rural, 2.59 per cent for Urban) across classes. Using the statistical equivalent of Gini Coefficient, Horizontal Consumption Inequality between Rural and Urban across fractiles has declined from 0.560 to 0.475

*Urban Rural gap as a percentage of rural consumption is on a declining trend. It has declined from 90.8 per cent in 2004-05 to 71.2 per cent in 2022-23 and we believe, is projected to further decrease to 65.1 per cent in 2029-30

*In the lowest segment, urban consumption is only 46 per cent more dissimilar than the rural counterpart. Across fractile classes, urban consumption is only 68 per cent more dissimilar than rural counterpart, a number much less than the all India average. This indicates the bottom half of the rural pyramid are now having MPCE patterns mostly converging to Urban counterparts.


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