Poverty and  inequality

The World Bank defines poverty in absolute terms. The bank defines extreme poverty as living on less than US$1.90 per day> (PPP), and moderate poverty as less than $3.10 a day. Types of Poverty Absolute poverty measures poverty in relation to the amount of money necessary to meet basic needs such as food, clothing, and shelter. The concept of absolute poverty is not concerned with broader quality of life issues or with the overall level of inequality in society.

The concept of absolute poverty is based on absolute norms for living (measured in terms of consumption expenditure) laid down according: to specified minimum standard and all such individuals or groups whose consumption expenditure is found to be below this standard are classified as poor. Under the relative concept of poverty, a family (or an individual) is deemed to be poor if its level of income or consumption expenditure falls below a predetermined level.

Poverty in India is measured as the head-count ratio of the population living below the official ‘poverty line’, which is calculated using the methodology prescribed by the Expert Group on Methodology for Estimation of Poverty appointed by the Planning Commission in order to arrive at a threshold consumption level of both food and non-food items. The methodology uses the Consumer Expenditure Surveys (CES) conducted by the National Sample Survey Office (NSSO) of India once every five years to attain the poverty line; and, hence, poverty figures in India are obtained once every five years. The Planning Commission’s latest poverty line, using methodology suggested by the Tendulkar Committee in 2010, is apparently defined as the spending of Rs. 27.20 per capita per day in rural areas and Rs.33.40 per capita per day in urban areas.

Unemployment is a phenomenon that occurs when a person who is actively searching for employment is unable to find work. Unemployment is often used as a measure of the health of the economy.Different types of Unemployment are as follows:-

  • Structural unemployment focuses on the structural problems within an economy and inefficiencies in labor markets. Structural unemployment occurs when a labor market is not able to provide jobs for everyone who is seeking employment.
  • Frictional unemployment is when workers leave their old jobs but haven’t yet found new ones. Most of the time workers leave voluntarily, either because they need to move, or they’ve saved up enough money to allow them to look for a better job.Frictional unemployment is short-term and a natural part of the job search process.
  • Cyclical unemployment is a type of unemployment that occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work. In an economy, demand for most goods falls, less production is needed, and less workers are needed.
  • Disguised unemployment exists where part of the labor force is either left without work or is working in a redundant manner where worker productivity is essentially zero. It is unemployment that does not affect aggregate output.


Human Poverty Index (HPI)

The Human Poverty Index (HPI) was first introduced into the Human Development Report by the United Nations Development Programme (UNDP) in 1997 in an attempt to bring together in a composite index the different features of deprivation in the quality of life to arrive at an aggregate judgement on the extent of poverty in a community.

There are two indices; the HPI – 1, which measures poverty in developing countries, and the HPI-2, which measures poverty in OCED developed economies.

Calculation of HPI-1 for Developing countries:-The following three dimensions are taken into account:

  • deprivation of longevity, measured as a percentage of the individuals with a life expectancy lower than 40 years (P1).
  • deprivation of knowledge, expressed as a percentage of illiterate adults (P2).
  • deprivation of decent living standards (P3). This last indicator is made up by the simple average of three basic variables:
    • the percentage of the population without access to drinking water (P31),
    • the percentage of population without access to health services (P32) and lastly,
    • the percentage of underweight children aged less than five (P33).

The indicator P3, referred to the living standard, is then obtained as an average of the three indicators, in this way:

[(P31 + P32 + P33) / 3

The global index HPI-1 is obtained by combining these three dimensions into one single measure giving a greater weight to the most disadvantaged situation.

The formula is:

HPI-1 = [(P13 + P23 + P33 ) / 3]1/3

While HPI-2 is calculated as follows:-


Multi Dimensional Indian poverty index

Poverty is a multi-dimensional issue and various experts/committees and institutions estimate poverty based on different perceptions/definitions. However, Planning Commission is the nodal agency in the Government of India to estimate poverty in the country. TheMultidimensional Poverty Index (MPI) was developed in 2010 by the Oxford Poverty & Human Development Initiative (OPHI) and the United Nations Development Programme. and uses different factors to determine poverty beyond income-based lists. It replaced the previous Human Poverty Index.

Various dimentions of MPI are:-

  • Child Mortality
  • Nutrition
  • Years of schooling
  • School attendance
Living Standards
  • Cooking fuel
  • Toilet
  • Water
  • Electricity
  • Floor
  • Assets

Life expectancy at birth: Number of years a newborn infant could expect to live if prevailing patterns of age-specific mortality rates at the time of birth stay the same throughout the infant’s life.
Expected years of schooling: Number of years of schooling that a child of school entrance age can expect to receive if prevailing patterns of age-specific enrolment rates persist throughout the child’s life.
Mean years of schooling: Average number of years of education received by people ages 25 and older, converted from education attainment levels using official durations of each level.
Gross national income (GNI) per capita: Aggregate income of an economy generated by its production and its ownership of factors of production, less the incomes paid for the use of factors of production owned by the rest of the world, converted to international dollars using PPP rates, divided by midyear population.

According to a report of Oxfam international , India’s richest now hold 58% of country’s wealth. 57 billionaires in the country have the same wealth as that of the bottom 70% population, Wealth inequality is a serious issue. The reasons for wealth inequality are:

  • Growing incidence of Tax avoidance and Tax evasion
  • Existence of black economy. Most of the real estate business take place through black money only.
  • Major chunk of the population working in low pay sectors , unremunerative agriculture.
  • Crony capitalism is also one of the reason . Policies are tailor made to serve the needs of few corporate houses only.

Widening inequality has serious repercussions:

  1. Lower tax/gdp ratio. Less money for social sector expenditure. Low rate of social capital formation.
  2. Continuing socio- economic backwardness and demand from other section to be included in backward category status.
  3. Exploitation of the poor and the vulnerable.
  4. Increasing corruption, crime and insecurity in the society.
  5. Free market envt is not available for small businesses. Growth of MSME sector get hampered.
  6. Demographic dividend may turn into liability.
  7. Farmer suicides are increasing.


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