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India appears to be on the yellow brick road towards an important economic milestone in the next five years. It will likely become an upper middle-income country in 2030, the third stage of the very long march from mass poverty to shared prosperity. Few countries reach the end of this journey.
The World Bank categorizes countries into four groups—low income, lower middle-income, upper middle-income and high income. India is currently a lower middle-income country. The third stage is now within reach. The fourth is still in the distant future.
Also Read: India has four types of poverty. One of them perpetuates the other three.
Every April, the International Monetary Fund (IMF) publishes its economic forecasts for all member countries five years out into the future. In its latest release a few days ago, the multilateral lender expects India to have a $6.77 trillion economy in 2030. That will mean the average dollar income of an Indian at market exchange rates will be $4,468 in that year, as against $2,878 by the end of 2025. The corresponding numbers in terms of purchasing power parity (PPP) are $13,638 and $10,396, respectively.
The World Bank currently defines an upper middle-income country as one with an annual per capita income that is higher than $4,516, but below $14,006 at market exchange rates. The new IMF estimate indicated that India will—albeit ever so slightly—enter this income range in 2030. To be sure, the incomes used to classify countries into the four categories change every few years, and every economic forecast comes with estimation errors, but there is little doubt that India is on the cusp of a major shift in its economic status within the next few years.
That will provide ample reason for celebration in a country that has battled mass poverty for most of its history. However, the transition to upper middle-income country status will also create some specific challenges.
One of them is taking a fresh look at how the poor are counted in India. Many recent poverty estimates flatter to deceive because they are based on outdated measures of deprivation more suited to a poor country rather than one whose average annual income is approaching the $4,500 mark.
Back to the World Bank. Its global poverty line is well known: $2.15 a day in PPP terms, based on the median national poverty line of 28 low-income countries. India has almost ended poverty based on this global measure, which is no small achievement, but also one that triggers premature triumphalism.
Also Read: India could be an upper middle income country within a decade
However, the World Bank has two other international poverty lines: $3.65 a day for lower-middle income countries and $6.85 a day for upper middle-income countries, both in terms of PPP. These set a much higher bar for countries that aspire to something more than a victory over absolute poverty of the type in which people cannot get two square meals a day. (PPP is usually used to compare living standards across countries after adjusting for price differences, because a dollar can get you more in Mumbai or Jakarta than in New York or London.)
The two other international poverty lines are far higher than the $2.15 a day that is widely used as a gauge. Of course, such international poverty lines are useful to compare how different countries are doing in the battle against extreme poverty. Each country also has its own internal poverty line. India is no exception, and in fact has an impressive record of poverty measurement studies since independence.
Nearly every country builds its poverty line on the basis of household consumer surveys, which India has usually conducted once every five years. The poverty line is anchored in the cost of a basket of food items that the poor in a country usually consume for basic nutrition. Added to that is the cost of some essential non-food items that any family needs. National poverty lines have to be periodically recalculated in tandem with changes in consumption patterns, shifts in relative prices and improvements in the standard of living.
India has not had an official estimate of poverty since 2012, since the findings of the Household Consumption Expenditure Survey conducted in 2017-18 were not released by the government. The findings of the subsequent survey conducted in 2023-24 are now in the public domain, but have not yet been used to draw a new poverty line.
Also Read: The uphill battle against poverty
So India now has a poverty gauge that is nearly a dozen years old, through a time of economic transformation. Not only does India need a new poverty line, but one that is substantially higher than the current one. We need a poverty line that is more suitable to a country that will soon be in the ranks of upper middle-income nations.
That will also mean that the number of India’s poor will have to be recalculated against a higher poverty line. Business Standard reported last week that only 2.3% of Indians lived below the extreme poverty line of $2.15 a day, while 28.1% lived below the $3.65 a day mark that is the correct gauge for a lower middle-income country.
A higher poverty ratio may initially result in bad optics, but it will help the Indian government reorient its anti-poverty programmes that were mostly designed for an earlier era.
The author is executive director at Artha India Research Advisors.
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