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Although the middle class has gained from recent positive economic developments, India still suffers from substantial poverty. The Planning Commission, which is the nodal official agency for poverty estimation, has estimated that 27.5% of the population was living below the poverty line in 2004–2005, down from 51.3% in 1977–1978, and 36% in 1993-1994. The source for this was the 61st round of the National Sample Survey (NSS) and the criterion used was monthly per capita consumption expenditure below Rs. 356.35 for rural areas and Rs. 538.60 for urban areas. 75% of the poor are in rural areas with most of them comprising daily wagers, self-employed households and landless labourers.

Causes of poverty in India

The major causes for poverty in India are:

• Widespread reliance on primitive methods of agriculture.
• 75% of the population depends on agriculture whereas the contribution of agriculture to the GDP is 22%.
• While services and industry have grown at double digit figures, agriculture growth rate has dropped from 4.8% to 2%
• High population growth rate,
• Unemployment and Under-employment,
• Protectionist/socialist policies pursued till 1991 that prevented high foreign investment |
• Lack of property rights. The Right to Property is not a fundamental right in India.
• Over-reliance on agriculture. There is a surplus of labour in agriculture. Farmers are a large vote bank and use their votes to resist reallocation of land for higher-income industrial projects.

Despite this, India currently adds 40 million people to its middle class every year. Analysts such as the founder of "Forecasting International", Marvin J. Cetron writes that an estimated 300 million Indians now belong to the middle class; one-third of them have emerged from poverty in the last ten years. At the current rate of growth, a majority of Indians will be middle-class by 2025. Literacy rates have risen from 52 percent to 65 percent in the same period.

The proportion of India's population below the poverty line has fluctuated widely in the past, but the overall trend has been downward. However, there have been roughly three periods of trends in income poverty.

1950 to mid-1970s: Income poverty reduction shows no discernible trend. In 1951, 47% of India's rural population was below the poverty line. The proportion went up to 64% in 1954-55; it came down to 45% in 1960-61 but in 1977-78, it went up again to 51%.

Mid-1970s to 1990: Income poverty declined significantly between the mid-1970s and the end of the 1980s. The decline was more pronounced between 1977-78 and 1986-87, with rural income poverty declining from 51% to 39%. It went down further to 34% by 1989-90. Urban income poverty went down from 41% in 1977-78 to 34% in 1986-87, and further to 33% in 1989-90.

After 1991: This post-economic reform period evidenced both setbacks and progress. Rural income poverty increased from 34% in 1989-90 to 43% in 1992 and then fell to 37% in 1993-94. Urban income poverty went up from 33.4% in 1989-90 to 33.7% in 1992 and declined to 32% in 1993-94 Also,NSS data for 1994-95 to 1998 show little or no poverty reduction, so that the evidence till 1999-2000 was that poverty, particularly rural poverty, had increased post-reform. However, the official estimate of poverty for 1999-2000 was 26.1%, a dramatic decline that led to much debate and analysis. This was because for this year the NSS had adopted a new survey methodology that led to both higher estimated mean consumption and also an estimated distribution that was more equal than in past NSS surveys. The latest NSS survey for 2004-05 is fully comparable to the surveys before 1999-2000 and shows poverty at 28.3% in rural areas, 25.7% in urban areas and 27.5% for the country as a whole. Thus, poverty has declined after 1998, although it is still being debated whether there was any significant poverty reduction between 1989-90 and 1999-00. The latest NSS survey was so designed as to also give estimates roughly, but not fully, comparable to the 1999-2000 survey. These suggest that most of the decline in rural poverty over the period during 1993-94 to 2004-05 actually ocurred after 1999-2000.

In summary, the official poverty rates recorded by NSS are:

History of attempts to alleviate poverty

Since the early 1950s, government has initiated, sustained, and refined various planning schemes to help the poor attain self sufficiency in food production. Probably the most important initiative has been the supply of basic commodities, particularly food at controlled prices, available throughout the country as poor spend about 80 percent of their income on food.

Programmes like Food for work and National Rural Employment Programme have attempted to use the unemployed to generate productive assets and build rural infrastructure. Other anti poverty programs include Rural Landless Employment Guarantee Programme.

The Rural Landless Employment Guarantee Programme was instituted in FY 1983 to address the plight of the hard-core rural poor by expanding employment opportunities and building the rural infrastructure as a means of encouraging rapid economic growth. There were many problems with the implementation of these and otherschemes, but observers credit them with helping reduce poverty. To improve the effectiveness of the National Rural Employment Programme, in 1989 it was combined with the Rural Landless Employment Guarantee Programme and renamed Jawahar Rozgar Yojana, or Jawahar Employment Plan (see Development Programs, ch. 7).

In August 2005, the Indian Parliament passed the Rural Employment Guarantee Bill, the largest programme of this type in terms of cost and coverage, which promises 100 days of minimum wage employment to every rural household, in 200 of India's 600 districts. Template:Inote The question of whether economic reforms have reduced poverty or not has fueled debates without generating any clearcut answers, and has also put political pressure on further economic reforms, especially those involving downsizing of labour and reduction of agricultural subsidies.

Outlook for poverty alleviation

Eradication of poverty in India can only be a long-term goal. Poverty alleviation is expected to make better progress in the next 50 years than in the past, as a trickle-down effect of the growing middle class. Increasing stress on education, reservation of seats in government jobs and the increasing empowerment of women and the economically weaker sections of society, are also expected to contribute to the alleviation of poverty. It is incorrect to say that all poverty reduction programmes have failed. The growth of the middle class (which was virtually non-existent when India became a free nation in August 1947) indicates that economic prosperity has indeed been very impressive in India, but the distribution of wealth is not at all even.

Controversy over extent of poverty reduction

While total overall poverty in India has declined, the extent of poverty reduction is often debatedCite error: A <ref> tag is missing the closing </ref> (see the help page)..

Economist Pravin Visaria has defended the validity of many of the statistics that demonstrated the reduction in overall poverty in India, as well as the declaration made by India's Finance Minister Yashwant Sinha that poverty in India has reduced significantly. He insisted that the 1999-2000 survey was well designed and supervised and felt that just because they did not appear to fit preconceived notions about poverty in India, they should not be dismissed outright. Nicholas Stern, vice president of the World Bank, has published defenses of the poverty reduction statistics. He argues that increasing globalization and investment opportunities have contributed significantly to the reduction of poverty in the country. India, together with China, have shown the clearest trends of globalization with the accelerated rise in per-capita income<ref

1. [http://www.planningcommission.gov.in/news/press.htm
2. Cite error: The named reference survey was invoked but never defined (see the help page).
3. Cite error: The named reference Datt-9 was invoked but never defined (see the help page).
4. "Jawahar gram samriddhi yojana". Retrieved July 9. {{cite web}}: Check date values in: |accessdate= (help); Unknown parameter |accessyear= ignored (|access-date= suggested) (help)
5. Lifting The Poverty Veil J. Ramesh, India Today