Domestic Product or NSDP) had higher rates of poverty reduction on average, an association that also holds strongly for growth of household per capita consumption.<sup>19</sup> Second, poverty reduction became more responsive to growth over time – elasticity of poverty reduction to growth in per capita NSDP and household per capita consumption increased during 2005‐2012 relative to 1994‐2005 in almost all states.<sup>20</sup> The rate at which growth translated into poverty reduction varied widely across states, with the growth elasticity of poverty reduction ranging from ‐0.5 to ‐1.7 during 1994‐2012 (Nayyar, 2014). Elasticity patterns across states highlight two important challenges: relatively low elasticity in the LIS (Rajasthan being the sole exception), and lower effectiveness of growth in lifting people out of vulnerability (2*PL) than out of poverty.<sup>21</sup> The first challenge is a key reason why the LIS are not converging in the rate of poverty reduction with other states. That said, there is a lot of variation in elasticities among the set of higher income states. Elasticity is not strongly correlated with state‐level growth in per capita incomes either.<sup>22</sup> The second challenge is seen in the generally lower range of elasticities when the vulnerability line of 2*PL is used, which suggests that on average, economic growth has been less efficient in lifting people into middle‐class than it has in lifting people out of poverty. Most LIS do relatively poorly on this metric as well, as do several of the other states.

# 5. India and the rest of the developing world in poverty reduction

Reduction in extreme poverty in India has exceeded the pace for the developing world since 2005 Since 2005, India has exceeded the pace of the developing world as a whole – as well as middle‐ income countries (MICs) and lower middle‐income countries (LMICs) – in reducing extreme poverty defined by the international poverty line of $1.90/day (2011 PPP).<sup>23</sup> This marks a change from the decade of the 1990s, when extreme poverty reduced in India at a rate on par with the developing world but lagged behind MICs and the sub‐group of LMICs that India is a part of (Figure 12). Comparisons with individual countries in South Asia and India’s MIC peers illustrate this positive trend, which however falls short of the rate of progress seen among the best performers. Extreme poverty reduction in India since 2005 exceeded the rate of progress in its neighbors Sri Lanka and Pakistan and some of its MIC peers (e.g. Indonesia, Bolivia and the Philippines), but lagged behind strong performers like Vietnam, Bhutan and Nepal (see Figure A‐ 4, Annex).

19 This correlation also holds for the share of population living below twice the poverty line.

20 Jammu and Kashmir and Assam are strong exceptions to this trend, while the low‐income states of Uttar Pradesh and Jharkhand experienced a mild decline in the elasticity of poverty reduction to NSDP growth from 1994‐2005 to 2005‐2012.

21 Refer to Figure A‐ 3, Annex.

22 This is consistent with past literature that finds a high degree of state‐level variation in the association between growth and poverty reduction in India, with no statistically significant relationship between growth rates and growth elasticities of poverty during the period 1994 to 2000 (Datt and Ravallion 2002).

23 See Ferreira et al (2015) for details on the international poverty line based on 2011 PPP, including methodology and results.

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