India's Remarkable Poverty Reduction Amidst Widening Inequality: A World Bank Analysis

Bengaluru, India — A recent World Bank report reveals a significant achievement for India, with nearly 500 million people lifted out of poverty between 2011 and 2023. During this period, extreme poverty in the world's most populous nation dropped from 27.1 percent to 2.6 percent. This scale of poverty reduction is comparable only to China, which saw over 800 million people escape extreme poverty, albeit over a span of 40 years. However, despite this substantial progress in India, a nation of 1.4 billion people, the gap in income and wealth inequality has widened considerably since the country's economic liberalization in the early 1990s. The 2026 World Inequality Report indicates that India's inequality levels remain among the highest globally. This analysis explores how India managed to nearly eradicate extreme poverty while simultaneously grappling with deep economic disparities.

World Bank Data on Poverty: According to the World Bank, using an extreme poverty threshold of $3 per day, India's extreme poverty rate fell from 27.1 percent to 2.6 percent between 2011 and 2023. Extreme poverty is defined as the minimum income required for basic necessities like food, water, shelter, and clothing. The report, which utilized three official household surveys, also estimated that approximately 496 million people have been lifted out of poverty as the percentage of India's population living below the lower middle-income poverty line of $4.20 per day decreased from 57.7 percent to 16.1 percent.

The report's authors, led by World Bank South Asia poverty economist Ayago Wambile, project that poverty in India will continue to decline, though at a slower pace. They anticipate the poverty rate at the $4.20/day line to fall from 14.2 percent in 2026 to 12.1 percent by 2028. This progress, they noted, was primarily fueled by robust consumption growth, increased employment opportunities, particularly for women, and expanded social welfare programs, including food subsidies.

Significance of India's Poverty Reduction: The World Bank has lauded India's achievement of lifting nearly 500 million people out of poverty in just 12 years as "remarkable progress," describing the downward trend as "one of the fastest poverty declines in the world." The World Bank determined India's poverty rates using Household Consumption Expenditure Surveys (HCES) conducted by the National Sample Survey Organisation (NSSO), an Indian government entity. A 2022 report by the World Bank and the Chinese Finance Ministry highlighted China's success in lifting 800 million people out of poverty over 40 years. Last month, the World Bank revised its economic growth forecast for India to 7.1 percent.

Indian Prime Minister Narendra Modi celebrated the country's poverty reduction efforts on Instagram, calling it "A historic fall in poverty. A generational rise in opportunity." Last November, the southern state of Kerala became the first in India to officially declare itself free from extreme poverty, boasting the best education and health statistics among major Indian states. Santosh Mehrotra, a development economist formerly with India’s planning commission, pointed out that India is the only low-middle-income country among the G20 nations, which are otherwise upper-middle- or high-income countries. He emphasized that the sheer size of India's population means that reducing the absolute number of poor people has a significant global impact. Surjit Bhalla, an economist and former executive director at the International Monetary Fund (IMF), affirmed the credibility of the World Bank's analysis, calling its data the "gold standard" for poverty assessment, which uses a globally normalized per capita consumption level adjusted for purchasing power parity.

Factors Contributing to Poverty Reduction: Economists attribute India's success in poverty reduction to a combination of factors and programs. Poverty in India has been on a downward trend since the economic liberalization in the early 1990s, which paved the way for over three decades of rapid economic growth. Successive governments have implemented, continued, or adapted social welfare schemes. For instance, former Prime Minister Manmohan Singh introduced an employment scheme guaranteeing rural jobs for at least 100 days annually. Prime Minister Modi's administration has introduced several welfare initiatives, including direct cash transfers, free rations, and housing programs. While the rural job guarantee scheme has been modified, the current government provides free food grains to approximately 800 million Indians. Additionally, the government has significantly expanded the construction of toilets, especially in rural areas, and increased access to piped drinking water, which has risen from 17 percent of rural homes in August 2019 to over 80 percent. Economists Surjit Bhalla and Karan Bhasin noted in a March 2024 research paper for the Brookings Institution that improved access to safe water may have contributed to increased family incomes. Bhalla and Bhasin had previously concluded in early 2025, using Indian consumption data, that the country was making substantial progress in eradicating extreme poverty.

Concerns Regarding Inequality and Sustainability: Despite the decline in poverty, Bhalla and Bhasin raised concerns in their 2025 paper that the free food grains provided by the government, while meeting caloric needs, might not offer balanced nutrition. They suggested that more targeted food subsidies could improve nutritional outcomes and better address food insecurity. Questions also arise about the long-term sustainability of providing free food supplies to over half the population and whether this indicates underlying economic distress mitigated by state aid.

Some economists, like Mehrotra, question why India relies solely on World Bank estimates for poverty levels and numbers, having ceased its own calculations since 2014. Mehrotra argues that a standard set by an international agency is insufficient for a country as large and diverse as India, where consumption patterns, including the widespread adoption of mobile phones, have evolved significantly. Bhalla, however, defends the use of World Bank data, stating that the methodology and estimates are vetted by all participating countries, including India, making the analysis ideologically sound. Jayati Ghosh, an economist at the University of Massachusetts Amherst, expressed concern over India's healthcare and nutrition indices, noting the country's low public healthcare spending (just over 1 percent of GDP) and the significant out-of-pocket health expenditures borne by citizens, which can lead to poverty and debt. Ghosh also pointed out that real wages have stagnated, with median earnings of the top 10 percent of workers being about 13 times those of the bottom 10 percent in 2023, which she argues are not indicators of a dynamic economy with falling poverty. Nitin Kumar Bharti, a lecturer at the University of Western Australia, acknowledged the World Bank's report but cautioned that 233 million people still live below the $4.20 per day poverty line. Bharti, a co-author of a 2024 study by the World Inequality Lab (WIL) on India's income and wealth disparities, highlighted uneven growth within the country as a major challenge, questioning the overall improvement in people's well-being despite the decline in extreme poverty.

Growing Income Inequality: Bharti explains that inequality is rising because the benefits of economic growth are unevenly distributed, with the top earners capturing a larger share of national income. The 2026 World Inequality Report indicates that the top 10 percent of earners in India receive about 58 percent of national income, while the bottom 50 percent receives only 15 percent. This disparity is exacerbated by structural inequalities, including the caste system, unequal asset ownership, and historical underinvestment in primary education, which limit opportunities for disadvantaged groups. Insufficient public investment in quality education and healthcare further entrenches these disparities, as family resources heavily influence access to skills, jobs, and economic security.

The rise in income inequality and lack of job opportunities have fueled discontent among India's youth, leading to recent nationwide protests. Government data from April 2025 and March 2026 showed youth unemployment rates of 13.8 percent and 15.2 percent, respectively. The State of Working India 2026 report from Azim Premji University indicated that nearly 40 percent of graduates aged 15-25 and about 20 percent aged 25-29 are unemployed, with the unemployment rate for diploma and postgraduate degree holders reaching 29.4 percent.

Does Inequality Matter if Poverty is Falling? Economists argue that inequality does matter. Firstly, the distribution of economic growth impacts how effectively it improves the lives of ordinary households; a more equal distribution generally means fewer people fall below the poverty line for a given average income. Secondly, rising inequality creates disparities in opportunities, affecting families' ability to afford education, healthcare, housing, business capital, or job searches. Thirdly, the concentration of wealth can lead to the disproportionate influence of a small group on policies and institutions.

Addressing Poverty and Inequality Simultaneously: Dipa Sinha, a development economist at Azim Premji University, suggests that India needs to prioritize wealth redistribution to tackle poverty and inequality. She advocates for more progressive taxation policies and increased government investment in universal public services like health and education. Bharti draws lessons from China's economic transformation, emphasizing its success in improving agricultural productivity, industrialization, rural-to-urban migration, and investment in human and physical capital. In contrast, he notes that India's current policy focus leans heavily towards physical infrastructure, often benefiting the top 10 percent more than the bottom 90 percent. While roads and transport are crucial for economic access, Bharti stresses the equal importance of quality public schools and hospitals that enable people to leverage these opportunities. He recommends that India's government pursue poverty reduction and broader economic inclusion concurrently, using progressive taxation to fund investments equitably.