Poverty Dynamics in India between 2004 and 2012: Insights from Longitudinal Analysis Using Synthetic Panel Data

I. IntroductionPoverty has steadily decreased in India over the past decade.Since India makes up a quarter of the world's poor (i.e., those living on under $1.25 a day), which is roughly half again its share of the world's population (17%), reducing poverty in this country would not only affect its own welfare but also register a significant impact on global poverty estimates.1 What is particularly striking is the acceleration of poverty reduction that appears to be taking place.Between 2004-5 and 2009-10, poverty declined from 37.7% to 29.9%.Over the subsequent two years, poverty declined by a further 10 percentage points, to 20.0%.These achievements in poverty reduction have been widely remarked on and celebrated. 2 We offer several contributions in this paper, on both the conceptual and empirical fronts.On the conceptual front, we analyze the dynamics of poverty transitions.We attempt to seek a better understanding of such questions as What proportion of the population remain chronically poor over time?What This paper is a background paper for the India Poverty Assessment Report.We are grateful to editor Marcel Fafchamps, an associate editor, two anonymous referees, Rinku Murgai, Ambar Narayan, Himanshu, Abhijit Sen, and participants at a workshop for the India Poverty Assessment Report (Washington, DC) and a seminar at Jawaharlal Nehru University (New Delhi) for helpful discussions on earlier versions.We thank Yichen Tu for very capable research assistance.We would further like to thank the South Asia Data for Goals program for financial support and the UK Department of International Development for funding assistance through its Knowledge for Change and Strategic Research Programs.The findings and interpretations in this paper do not necessarily reflect the views of the World Bank, its affiliated institutions, or its executive directors.1 We use the poverty rates and population data, respectively, from the World Bank's PovCalNet database (http://iresearch.worldbank.org/PovcalNet/index.htm) and Development Indicators database.All figures are estimated averages for the years 2011 and 2012. 2 There have nevertheless been some concerns raised around the credibility of the most recent episode of poverty decline; we come back to more discussion in Sec.II.Unless otherwise noted, all the poverty rates are based on the national poverty lines.