Poverty in the Indian Economy is not merely a lack of income but a multidimensional deprivation of basic human needs.
Absolute Poverty: The Survival Benchmark
Absolute poverty refers to a condition where a household’s income falls below a level necessary to maintain basic living standards (food, shelter, clothing, and water). It is a fixed standard that remains consistent over time regardless of how the rest of the economy grows.
Essential Features of Absolute Poverty
- Poverty Line: It is measured using a “Poverty Line,” which is the minimum expenditure required to purchase a basket of essential goods and services.
- Measurement in India: Traditionally, India has used calorie intake as the basis for absolute poverty. The Lakdawala and Alagh Committees focused on 2,400 kcal (Rural) and 2,100 kcal (Urban).
- International Standards: The World Bank uses the International Poverty Line, currently set at $2.15 per person per day (based on 2017 PPP), to track global absolute poverty.
- Applicability: This concept is most relevant for developing nations like India, where the primary policy goal is the eradication of hunger and homelessness.
Relative Poverty: The Inequality Benchmark
Relative poverty defines poverty in relation to the overall distribution of income or consumption in a specific society. A person is considered “relatively poor” if they earn significantly less than the average or median income of their country.
Essential Features of Relative Poverty
- Standard of Living Comparison: It measures the “gap” between the rich and the poor. Even if a person can afford basic food and shelter, they may be relatively poor if they cannot afford the lifestyle common to their community.
- Indicator of Inequality: It is a measure of income inequality rather than survival. Even in a wealthy nation, relative poverty persists if income is concentrated at the top.
- Measurement Tools: It is often expressed through the Gini Coefficient and the Lorenz Curve.
- Applicability: This concept is more relevant for developed economies (e.g., EU or USA) where survival is guaranteed, but social exclusion due to income disparity is a concern.
Comparative Analysis: Absolute vs. Relative Poverty
| Feature | Absolute Poverty | Relative Poverty |
|---|---|---|
| Basic Definition | Falling below a fixed minimum survival level. | Falling below the average standard of living in a society. |
| Nature of Measure | Objective and biological (minimum needs). | Subjective and social (comparison). |
| Policy Focus | Alleviation of hunger and basic deprivation. | Reduction of income inequality and social exclusion. |
| Stability | Remains constant if prices are adjusted. | Changes as the overall wealth of the society increases. |
| Primary Metric | Head Count Ratio (HCR). | Gini Coefficient, Lorenz Curve. |
Measurement Tools for Poverty and Inequality
To address poverty 360°, aspirants must be familiar with the mathematical and graphical tools used by economists to quantify these concepts.
Head Count Ratio (HCR)
The most common way to measure absolute poverty. It is the percentage of the population whose income or consumption is below the poverty line.
Poverty Gap Index (PGI)
The PGI measures the “depth” of poverty. Instead of just counting the poor, it calculates the average distance that the poor are from the poverty line. A higher PGI indicates more severe poverty.
Lorenz Curve and Gini Coefficient
The Lorenz Curve is a graphical representation of the distribution of income. The Gini Coefficient is the numerical ratio derived from this curve.
- Gini = 0: Perfect equality (everyone has the same income).
- Gini = 1: Perfect inequality (one person has all the income).
Expert Committees on Poverty Estimation in India
India’s approach to absolute poverty has evolved through several expert groups appointed by the Planning Commission (now NITI Aayog).
- Alagh Committee (1979): First to define the poverty line based on calorie requirements (2400/2100).
- Lakdawala Committee (1993): Introduced state-specific poverty lines and shifted from calorie-only to Consumer Price Index (CPI-AL and CPI-IW).
- Tendulkar Committee (2009): Moved away from calorie-based models to a “Poverty Line Basket” (PLB) including health and education expenditure.
- Rangarajan Committee (2014): Revised the poverty line upwards, suggesting daily per capita expenditure of ₹32 for rural and ₹47 for urban areas.
Multidimensional Poverty Index (MPI)
Modern economic thought recognizes that income alone is insufficient to measure poverty. The MPI, used by the UNDP and NITI Aayog (National MPI), evaluates deprivation across three dimensions:
- Health: Nutrition, Child & Adolescent Mortality.
- Education: Years of schooling, School attendance.
- Standard of Living: Cooking fuel, Sanitation, Drinking water, Electricity, Housing, Assets, and Bank Accounts.
Important Facts and Trivia for Prelims
- Dadabhai Naoroji: The first to estimate poverty in India in his book Poverty and Un-British Rule in India using the “jail cost of living” concept.
- Vicious Cycle of Poverty: A concept by Ragnar Nurkse explaining how low income leads to low savings, low investment, and back to low income.
- Kuznets Curve: A hypothesis suggesting that in the early stages of development, inequality increases, but eventually decreases as the country grows wealthier.
- NITI Aayog’s Role: NITI Aayog is the nodal agency in India for monitoring the Multidimensional Poverty Index.