Poverty & Unemployment – 01


In India, the problems of unemployment and poverty have always been major obstacles to economic development. Regional disparity is also crucial in this context. Economic reforms, changes in the industrial policy and better utilization of available resources are expected to reduce the problem of unemployment and poverty. The governmental bodies are also required to initiate long term measures for poverty alleviation. Generation of employment opportunities and equality in income distribution are the two key factors that are of utmost important to deal with the dual problem of unemployment and poverty. Large population has been a major factor in poverty and the aspect of demographic dividend has to be channelized in order to lift people out of poverty and ensure they are human resources (skilled and employed) and ensure both economic and human development. Hence in this chapter we will be taking a closer look and understanding the concepts of poverty, population growth, demography, demographic dividend, unemployment, skill development etc.


The UN Human Rights Council has defined poverty as a human condition characterised by the sustained or chronic deprivation of the resources, capabilities, choices, security and power necessary for the enjoyment of an adequate standard of living and other civil, cutural, economic, political and social rights. In general, poverty can be defined as a situation when people are unable to satisfy the basic needs of life. The definition and methods of measuring poverty differs from country to country. The extent of poverty in India is measured by the number of people living below the Poverty Line.

Poverty Line

The Poverty Line defines a threshold income. Households earning below this threshold are considered poor. Different countries have different methods of defining the threshold income depending on local socio-economic needs. The Planning Commission releases the poverty estimates in India. Poverty is measured based on consumer expenditure surveys of the National Sample Survey Organisation (NSSO). A poor household is defined as the one with an expenditure level below a specific poverty line. Earlier, India used to define the poverty line based on a method defined by a task force in 1979. It was based on expenditure for buying food worth 2,400 calories in rural areas and 2,100 calories in urban areas. In 2009, the Suresh Tendulkar Committee defined the poverty line on the basis of monthly spending on food, education, health, electricity and transport. The Planning Commission has updated the poverty lines and poverty ratios for the year 2009-10 as per the recommendations of the Tendulkar Committee. It has estimated the poverty lines at all India level as an MPCE (monthly per capita consumption expenditure) of `. 673 for rural areas and `. 860 for urban areas in 2009-10. So a person who spends ` 673 in rural areas and `. 860 in urban area per month is defined as living below the poverty line
Types Of Poverty Poverty can be of two types:
  • Absolute Poverty
  • Relative Poverty
Absolute Poverty

Absolute poverty refers to a condition where a person does not have the minimum amount of income needed to meet the minimum requirements for one or more basic living needs over an extended period of time. It is expressed in terms of a poverty line.

Relative Poverty

Relative poverty refers to poverty on the basis of comparison of per-capita income of different countries. Relative poverty is considered the easiest way to measure the level of poverty in an individual country. Multidimensional poverty

Multidimensional poverty encompasses the various deprivations experienced by poor people in their daily lives – such as poor health, lack of education, inadequate living standards, disempowerment, poor quality of work, the threat of violence, and living in areas that are environmentally hazardous, among others. Causes of Poverty in India

  1. Vicious Circle of Poverty: It is said that “a country is poor because it is poor.” This idea has come down from Ragnar Nurkse who pinpointed the problem of the vicious circle of poverty. Low level of saving reduces the scope for investment; low level of investment yields low income and thus the circle of poverty goes on indefinitely.
  2. Low Resources Endowment A household is poor if the sum total of income earning assets which it commands, including land, capital and labour of various levels of skills, cannot provide an income above the poverty line. The poor mainly consists of unskilled labour, which typically does not command a high enough level of wage income.
  3. Inequality in the Distribution of Income and Assets: The distribution of income and assets also determine the level of income. The economic inequalities are the major cause of poverty in India. It means the benefits of the growth have been concentrated and have not “trickled down” sufficiently to ensure improved consumption among the lower income groups.
  4. Lack of Access to Social Services: the lack of access to social services such as health and education compound the problems arising from inequality in the ownership of physical and human assets. These services directly affect household welfare. The poor typically get much less than a fair share of such services.
  5. Lack of access to Institutional Credit the banks and other financial institutions are biased in the provision of loans to the poor for the fear of default in the repayment of loans. It may lead to the payment of abnormally high rental shares for land, or acceptance of abnormally low wages in various types of “bonded labour”. Their poverty is further accentuated because of indebtedness. Such indebted families continue to remain under the poverty line for generations because of this debt-trap. Price Rise: The rising prices have reduced the purchasing power of money and thus have reduced the real value of money income. The people belonging to low income group are compelled to reduce their consumption and thus move below the poverty line.
  6. Lack of Productive Employment The magnitude of poverty is directly linked to unemployment situation. The present employment conditions don’t permit a reasonable level of living causing poverty. The lack of productive employment is mainly due to problems of infrastructure, inputs, credit, technology and marketing support. The gainful employment opportunities are lacking in the system.
  7. Rapid Population Growth: The faster population growth obviously means a slower growth in per capita incomes for any given rate of growth of gross domestic product (GDP), and therefore a slower rate of improvement in average living standards. Further the increased population growth increase consumption and reduces national savings and adversely affects the capital formation thereby limiting the growth in the national income.
  8. Low Productivity in Agriculture The level of productivity in agriculture is low due to subdivided and fragmented holdings, lack of capital, use of traditional methods of cultivation, illiteracy etc. This is the main cause of poverty in the rural India.
  9. Social Causes (i) Education: Education is an agent of social change. Poverty is also said to be closely related to the levels of schooling and these two have a circular relationship. The earning power is affected by investment in individual’s education and training. However, poor people do not have the funds for human capital investment and thus it limits their income. (ii) Caste system: Caste system in India has always been responsible for rural poverty. The subordination of the low caste people by the high caste people caused the poverty of the former. Due to rigid caste system, the low caste people could not participate in various economic activities and so remain poor. (iv) Social customs: The rural people generally spend a large percentage of annual earnings on social ceremonies like marriage, death feast etc. and borrow largely to meet these requirements. As a result, they remain in debt and poverty.
Measures of Absolute Poverty

  1. Poverty line: Poverty line is a hypothetical line based on income or consumption levels that divides the population as people below poverty line and above poverty line. Poverty line indicates the level of purchasing power required to satisfy the minimum needs of a person. In India, Poverty line is based on consumption Expenditure.
Poverty line divides the population in two groups, one of those, who have enough purcasing power and known as above poverty line and the other group of those people, who do not have much enough purchasing power and known as below poverty line.
  1. Head Count Ratio (HCR)
The Head count ratio (HCR) is the proportion of a population that exists, or lives, below the poverty line. The Poverty headcount ratio at national poverty line (percentage of population) in India was last reported at 21.9% in 2011-12. Poverty – Line Estimation in India: In post-Independence, Poverty lines responsibility was given to planning commission. Committees were set up for formulating the definition of poverty line. The Planning Commission estimates levels of poverty in the country on the basis of consumer expenditure surveys conducted by the National Sample Survey Office (NSSO) of the Ministry of Statistics and Programme Implementation. NITI Aayog as a policy think tank has replaced Planning Commission, which was earlier responsible for calculating the poverty line in India.    
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