Can farmers with higher capabilities fend off falling into future Poverty? Empirical evidence from a tribal region in eastern India

•Assessing Vulnerability to Poverty (VtP) reduction effect of household capabilities help in achieving the Sustainable Development Goals 1 (no poverty).•We used Feasible Generalized Least Squares to estimate VtP, counting approach and Propensity Score Matching (PSM) method to examine the relationship between the capabilities of households and their VtP in rural Odisha.•We find that VtP rate is higher than the currently classified poverty rate.•The empirical evidence shows that households with higher capabilities are less VtP.•The study recommends policy targeting the poor and vulnerable would significantly reduce poverty and contribute to achieving SDG1. The United Nations Sustainable Development Goals (SDGs) 1 (no poverty), targets those individuals who are below the poverty line and those who are vulnerable to falling below the poverty line (VtP). Farmers are more VtP due to limited resilience capacity against the covariate and idiosyncratic shocks. However, literature on farmers’ VtP and their capabilities to mitigate the adverse effects of shocks is relatively scant. Thus, this study aims to examine if higher capabilities lead to less VtP. Using a survey dataset from 222 farm households in rural eastern India, this study first estimated VtP by employing the Feasible Generalized Least Squares (FGLS) approach. Secondly, it used a counting approach and Propensity Score Matching (PSM) method to examine the relationship between the capabilities of households and their VtP. The FGLS results show that about 50% of households are VtP, which exceeds the actual poverty rate of about 36%. The counting approach results show that households with higher capabilities are less VtP. The PSM results indicate that a household’s VtP is reduced by 27–37% for those with higher capabilities. Thus, the policy targeting the household below poverty line and also VtP would significantly reduce poverty and contribute to achieving SDG1. This would involve identifying and targeting households most in need of assistance such as households with low income, lack of education, and limited access to resources. This study also suggests increasing the resilience capabilities of households by providing job skill training, diversifying income portfolios, insurance coverage, and social safety nets.