Poverty is a multidimensional phenomenon characterized by the inability of an individual or a household to meet a minimum level of consumption or social participation. In the Indian economy context, it is categorized primarily based on the severity and the benchmark of comparison.
Classification by Measurement: Absolute vs. Relative Poverty
Understanding the distinction between these two concepts is fundamental for policy formulation and international comparisons.
Absolute Poverty
Absolute poverty refers to a condition where a person cannot afford the basic minimum requirements for human survival, such as food, clothing, shelter, and clean water.
- Poverty Line: It is measured against a fixed standard or “poverty line” representing the minimum income required to purchase a basket of essential goods.
- UPSC Fact: In India, absolute poverty is the primary focus of the Planning Commission (now NITI Aayog) and various expert committees (Alagh, Lakdawala, Tendulkar, and Rangarajan).
- Universal Standard: The World Bank currently uses a threshold of $2.15 per person per day (in 2017 Purchasing Power Parity terms) to define extreme absolute poverty globally.
Relative Poverty
Relative poverty occurs when individuals lack the minimum amount of income needed to maintain the average standard of living in the society in which they live.
- Inequality Indicator: It is essentially a measure of income inequality rather than survival.
- Measurement: It is often expressed as the percentage of the population with an income less than a fixed proportion (e.g., 50% or 60%) of the median income.
- Relevance: Highly relevant in developed economies where survival is generally ensured, but social exclusion persists.
| Feature | Absolute Poverty | Relative Poverty |
| Definition | Inability to meet basic survival needs. | Comparison with the average standard of living. |
| Benchmark | Fixed Poverty Line (e.g., calories or income). | Median income of the population. |
| Economic Context | Dominant in Developing Nations (India, Sub-Saharan Africa). | Dominant in Developed Nations (EU, USA). |
| Policy Goal | Eradication and survival. | Reduction of income inequality. |
Modern Dimensions: Multidimensional Poverty (MPI)
Moving beyond just income and consumption, the Multidimensional Poverty Index (MPI) captures overlapping deprivations that people face simultaneously.
The Global and National MPI Framework
The MPI was developed by the Oxford Poverty and Human Development Initiative (OPHI) and the UNDP. NITI Aayog is the nodal agency for the National MPI in India.
- Health: Nutrition and Child & Adolescent Mortality.
- Education: Years of Schooling and School Attendance.
- Standard of Living: Cooking fuel, Sanitation, Drinking water, Electricity, Housing, Assets, and Bank Accounts (added in the Indian context).
Key Indices and Measures of Poverty
Aspirants must distinguish between the following technical measures used to quantify the extent and depth of poverty.
Head Count Ratio (HCR)
The HCR is the proportion of the population that lives below the poverty line.
- Formula: HCR = q/n where q is the number of poor and n is the total population.
- Limitation: It tells us how many are poor but not how poor they are.
Poverty Gap Index (PGI)
The PGI measures the intensity of poverty. It calculates the mean distance of the population from the poverty line (counting the non-poor as having zero gap).
- Significance: It helps in identifying the amount of resources needed to bring all poor individuals up to the poverty line.
Squared Poverty Gap (Poverty Severity)
This index gives more weight to the “poorest of the poor” by squaring the poverty gap. It captures the inequality among the poor themselves.
Categories of Poverty by Duration
Sociologists and economists classify poor households based on the duration for which they remain below the poverty line.
- Chronic Poor: Those who are always poor (e.g., landless laborers) and those who are usually poor but may occasionally have a little more money (e.g., casual workers).
- Transient Poor: Those who move in and out of poverty (churning poor, like seasonal farmers) and the occasionally poor (who are rich most of the time but suffer a stroke of bad luck).
- Non-Poor: Those who never fall below the poverty line.
Factors Contributing to the Poverty Trap
The “Poverty Trap” or the “Vicious Cycle of Poverty” is a mechanism where low income leads to low investment in health and education, resulting in low productivity and, consequently, continued low income.
Key Elements of the Cycle
- Low Income → Low Savings: Prevents capital formation.
- Low Investment → Low Productivity: Results in stagnant wages.
- Intergenerational Transmission: Children born into poverty lack access to nutrition and education, perpetuating the cycle for the next generation.
Trivia and Quick Facts for Prelims
- Lorenz Curve: A graphical representation of wealth/income distribution. The further it bows from the line of equality, the higher the inequality.
- Gini Coefficient: A numerical measure of inequality derived from the Lorenz Curve. Values range from 0 (perfect equality) to 1 (perfect inequality).
- Kuznets Hypothesis: Suggests that as an economy develops, market forces first increase and then decrease economic inequality (inverted U-shaped curve).
- Sen Index: Developed by Amartya Sen, this index combines the Head Count Ratio, the Poverty Gap, and the Gini Coefficient among the poor to provide a comprehensive view.