Seeing the trends in absolute numbers illustrates vividly the scale of progress and the scale of the challenge. With population growth, the number of poor people remained stubbornly high at over 400 million in the eleven years between 1994 and 2005. In the next seven years, 137 million people (roughly 20 million per year) escaped poverty. Yet, poverty remains widespread; 270 million people still lived in poverty in 2012. Because India is predominantly rural and rural areas are poorer, a huge concentration of poor people (four out of every five) live in rural areas.

Poverty reduction in India was fueled by rising consumption levels, while consumption inequality remained more or less stable since 2005. The pace of poverty reduction tracks the growth in average consumption quite closely, as seen by comparing Figure 2 with Figure 3. Consumption inequality measured by the Gini coefficient, after rising appreciably between 1994 and 2005, has remained almost unchanged in both rural and urban areas since then (Figure 4). The Gini indices of 0.37 and 0.27 for urban and rural areas, respectively, in 2012 are on the low end of the spectrum among developing countries.

# Rising prosperity, but with falling share of the bottom 40% in total consumption

For assessing progress among those at the lower end of the distribution, the World Bank Group’s preferred indicator for “shared prosperity”, which is the annualized per capita consumption (or income) growth of the bottom 40% of the population of a country, is an intuitive and useful metric.<sup>3</sup> This indicator for India shows a significant improvement since 2005 from the earlier period, tracking the poverty trends closely. Consumption growth of the bottom 40% averaged an anemic 0.8 percent per year between 1994 and 2005, and increased four‐fold to 3.3 percent per year between 2005 and 2012, averaging more than 5 percent annually during the last two years of this period (Figure 3).

Consumption growth for the bottom 40% of the distribution has however lagged slightly behind the average growth for the population through the entire period (Figure 3); which implies a declining share of the bottom 40% in total consumption expenditure, even as overall consumption inequality has remained almost unchanged since 2005.<sup>4</sup> Thus there is room for improvement in the extent to which growth is “inclusive” or benefits the least well‐off in society – poverty reduction in India, even during its best years, would have been even higher if consumption growth in the lower half of the distribution had matched or exceeded the average gains for the population. Interestingly, the decline in the share of the two bottom quintiles in total consumption has occurred even with an almost unchanged consumption

> 3 See World Bank (2015), Basu (2013) and Narayan et al (2013) for the normative properties, interpretation and empirical measurement of this indicator. The welfare aggregate – household income or consumption – is typically selected to be the one that is used for poverty measurement in the country.  For India, shared prosperity is estimated by the growth in consumption of the poorest 40 percent in the NSS consumption surveys.

> 4 This follows readily from the following algebraic property of the shared prosperity indicator: the growth of per capita consumption of the bottom 40% is decomposable into (i) the change in the _share_ of total consumption accruing to the bottom 40% and (ii) the growth of the average consumption of the total population (Rosenblatt & McGavock, 2013).

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