India’s Falling Poverty Rate- Jobs, AI and Ageing Challenges UPSC

India has made significant progress in reducing poverty, with the extreme poverty rate falling sharply in recent years. However, challenges related to unemployment, stagnant wages, regional inequalities, artificial intelligence (AI) and the ageing population remain. The future reduction in poverty will largely depend on the ability of India's poorer states to generate productive employment opportunities.

Why in the News?

According to the World Bank’s latest Poverty & Equity Brief, India's extreme poverty rate declined to 2.6% in 2023, from the previous year's level.

• Based on the $3-per-day poverty line, extreme poverty in India has been reduced by half.
• At the Lower Middle-Income Country poverty threshold of $4.2 per day, the poverty rate declined from 23.9% to 16.1%.
• The World Bank estimates that the poverty rate under the $4.2-per-day threshold declined further to 14.2% in 2026 and may fall to 12.1% by 2028.
• However, further poverty reduction will depend on the creation of productive jobs, particularly in India's poorest states.
• The World Bank also highlighted rising youth unemployment and limited growth in real earnings.

Declining Poverty Rate: Key Findings

India has recorded significant progress in reducing poverty. However, the extent of poverty varies depending on the poverty line used. The World Bank's estimates may be revised as new labour market and macroeconomic data become available. World Bank Poverty Estimates:

The 'Feeling' of Economic Growth

Despite India's impressive economic growth, there are concerns that the benefits of growth are not being equally experienced by people at the ground level.

• India's GDP grew by 7.8% in the April-June quarter, exceeding most forecasts.
• However, higher economic growth has not translated into a similar improvement in wages and living standards for many workers.
• The International Labour Organization (ILO) has also raised concerns about why the cost of living is becoming harder to afford despite economic growth.

Global Trend in Labour Income: According to ILO Chief Economist Sangheon Lee:

• The share of global income going to labour declined from around 54% in 2004 to 52.6% in 2025.
• This indicates a weakening relationship between higher productivity and workers' wages.

Challenges to India's Demographic Dividend. India's demographic dividend is often considered an important advantage for economic growth. However, this advantage cannot be taken for granted.

• Increasing use of social media and smartphones may affect concentration, reading habits and cognitive skills.
• The growing influence of Artificial Intelligence (AI) may further change the nature of employment and skills required.
• Concerns have also been raised about the impact of these developments on mental, physical and social health.
• Therefore, India needs to focus on improving the quality of its workforce rather than relying only on its large young population.

A New BIMARU Regional Concentration of Poverty

According to the World Bank, around 57% of India's poor now live in a continuous geographical belt stretching from Uttar Pradesh to West Bengal. This has brought attention back to the concept of BIMARU states, which was introduced more than four decades ago by demographer Ashish Bose. About BIMARU States

• The term BIMARU was coined to describe economically backward states.
• It originally referred to:
• Bihar
• Madhya Pradesh
• Rajasthan
• Uttar Pradesh

The latest World Bank assessment suggests that West Bengal may have replaced Rajasthan in the geographical concentration of poverty.

• Madhya Pradesh and Bihar were undivided states when the term was originally introduced.
• The World Bank has not provided state-wise poverty rates in its latest assessment.

Unofficial Poverty Line: RBI's Updated Estimates

India's last official poverty line was based on the recommendations of a committee headed by former RBI Governor C. Rangarajan. Rangarajan Poverty Line (2014): The committee estimated the monthly per capita expenditure required to remain above the poverty line as follows:

• Based on these estimates, India's poverty rate was calculated at 29.5%.
• The poverty line generated considerable debate because of the low daily expenditure levels used to determine poverty.

RBI's Updated Poverty Estimates. An RBI staff paper updated the Rangarajan poverty line for 20 major states using the Household Consumption Expenditure Survey (HCES), 2022-23. The findings highlighted significant differences in poverty levels across rural and urban areas.

Rural Poverty Rates:

Urban Poverty Rates:

Decline in Poverty Between 2011-12 and 2022-23

• These states have also recorded significant reductions in poverty over the period.
• Urban Bihar recorded the largest decline in poverty among all states.
• Its poverty rate fell from 50.8% in 2011-12 to 9.1% in 2022-23.

This indicates that despite continued regional inequalities, several poorer states have made substantial progress in poverty reduction.

A New Reckoning: Employment, AI and Regional Challenges

Although employment has increased in India, concerns regarding job quality, youth unemployment and stagnant wages remain.

1. Employment Growth

• According to the World Bank, employment increased by 13.4 crore between 2017 and 2023.
• This increase was nearly twice the growth in India's working-age population.
• However, rising employment numbers do not necessarily indicate adequate job quality or income growth.

2. Impact of AI

• The growing use of Artificial Intelligence is creating new challenges for India's labour market.
• Changes in technology may affect existing jobs and increase the demand for new skills.
• India needs to prepare its workforce for technological changes while ensuring productive employment opportunities.

3. Declining Factory Wages in Jharkhand

• Factory workers' wages in Jharkhand declined by 5.2% in 2024-25.
• In comparison, factory wages across India increased by 5.3%.
• Jharkhand was the only state to record a decline in factory workers' wages.

4. Youth Unemployment and NEET Population

A major concern is the large number of young people who are neither employed nor receiving education or training.

• In 2025, 81% of districts in Bihar had more than one-fourth of their young population (15-29 years) neither employed nor in education or training.
• West Bengal ranked second at 75%.
• Uttar Pradesh also recorded a high share at 69%.

5. Growth in Industrial Infrastructure

Despite these challenges, some poorer states have also recorded positive developments.

• Uttar Pradesh recorded the highest increase in the number of factories at 12.8% in 2024-25.
• This indicates progress in industrial expansion and potential employment generation.

India's Poverty Challenge and the Viksit Bharat 2047 Goal

India aims to become a developed country by 2047. However, poverty reduction and employment generation remain important challenges.

• According to the World Bank's $8.3-per-day poverty line for Upper Middle-Income countries, India's poverty rate stood at 80% in 2023.
• This highlights the difference between reducing extreme poverty and achieving higher living standards.
• Productive employment, better wages, industrial growth and skill development will be important for achieving inclusive economic growth.
• Poorer states, particularly those in the Uttar Pradesh-to-West Bengal belt, need greater focus on employment generation and economic development.

Conclusion

India has made significant progress in reducing extreme poverty. However, poverty reduction alone does not guarantee better living standards. Rising youth unemployment, stagnant wages, regional inequalities, technological changes and concerns over the demographic dividend remain major challenges. The future of India's poverty reduction will largely depend on the ability of poorer states to create productive jobs, improve workers' earnings and strengthen human capital. These efforts will also be essential for achieving the goal of Viksit Bharat by 2047.