This paper aims to document the unique characteristics of the financial lives of low-income households in India. It focuses on the intra-year fluctuations in income that are faced by these households owing to the precarity of their occupations. Contrary to the traditional view of poverty solely as an issue of insufficient resources, this paper emphasizes that poverty poses a triple whammy: insufficiency, instability, and illiquidity. These patterns are uncovered using a high-frequency measure of poverty, rendering a simplistic, annual snapshot of poverty inadequate. The paper utilizes the Centre for Monitoring Indian Economy’s Consumer Pyramids Household Survey (CMIE CPHS) dataset for 2019 to perform this analysis and finds that more households qualify as poor using the high-frequency measure of poverty. It was found that 28% of households would qualify as poor according to an annual average measure of income. However, at a high-frequency level, it is observed that 50% of households spend at least three months in poverty.
Furthermore, the paper discusses how households that do not exhibit any cashflow deficit at the annual level may still face intra-year deficits when examined at a higher frequency. It finds evidence that consumption smoothing, although not fully absent, is not perfect either and discusses the possible financial strategies of saving and borrowing that households adopt during periods of cashflow surplus or deficit.
Finally, the paper argues for a nuanced understanding of poverty when designing poverty alleviation programs and financial products, such that the solutions to poverty reflect the reality of the challenge itself.
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