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Absolute and Relative Poverty

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The condition of being unable to meet one’s necessities is referred to as absolute poverty. Absolute poverty is a term used to describe a situation where a person lacks the resources to purchase necessities for survival. On the other hand, when someone cannot afford to actively engage in society and gain from the experiences and activities that most others take for granted, they are said to be living in relative poverty. The term “relative poverty” describes the standard of living compared to other people’s economic standards in the same environment.

Measurement of Absolute Poverty and Relative Poverty: 

The absolute lack of the items needed for a person’s subsistence life is what poverty means. Typically, it is defined in terms of the absolute scale. India has been measuring poverty on an absolute basis using a calorie minimum or poverty line. It is influenced by access to social services as well as income. Every household whose income is below this amount will be labeled as poor. The poverty threshold in the absolute measurement of poverty is set using the monetary value of the basket of necessities (needed for basic requirements).

The indicators of relative poverty are the Gini coefficient and Lorenz curve. Relative poverty, mainly utilized by industrialized countries, is defined as having a household income lower than the median income in a particular country. They may not have the same level of living as the bulk of society, but those who fall into the category of relative poverty are relatively impoverished even though they may not be devoid of all essential needs. In this approach, a certain proportion of the economically disadvantaged population is always regarded as living below the poverty line.

In India, the absolute scale is typically used to quantify poverty. In India, measuring income and consumption levels is the method most frequently used to quantify poverty. If a person’s income is below a threshold where it is insufficient to cover their essential requirements, they are said to be poor. The “poverty line” is this threshold amount. A person or the household to which they belong is considered below the poverty line when their income or consumption is below a certain threshold. NITI Aayog currently calculates the poverty line using information gathered by the National Sample Survey Office (NSSO).

Recommended Modification by Amartya Sen:

  • The head-count metric “H,” which is the percentage of the population identified as being poor, such as by earning less than the designated poverty line income, is the most widely used indicator of overall poverty. The head-count metric “H” is q/n if q is the proportion of those in the community who are considered poor and n is the total population.
  • The so-called “poverty gap,” which is the total deficit of income of all the poor from the designated poverty level, is another indicator that has gained some notoriety. The index can be normalized by expressing the index as the percentage shortfall between the poor’s average income and the poverty line. This measurement is called the “Income gap ratio (I).”
  • As long as no one is brought below the poverty line by such handouts, the income gap ratio-I is fully unaffected. It also doesn’t care how many or what percentage of the impoverished population lives below the poverty line, focusing solely on the overall shortfall, regardless of how it is divided or among how many people. These restrictions are detrimental.
  • The headcount calculation naturally, “H” is sensitive to the number of people living in poverty; in fact, for a particular society, it is the only issue to which “H” is sensitive. “H,” however, gives absolutely no consideration to the magnitude of individuals who live in poverty’s income shortfall. Whether someone is severely in need of food and suffering or quite distant from it doesn’t matter to anyone.
  • Additionally, it is a perverse property that an income transfer from a poor person to a wealthier person can never improve the poverty measure “H.” In any case, the poor person from whom the transfer is made is counted in the value of “H,” and no drop in his income will increase the amount that he already counts. On the other hand, the recipient of the income transfer obviously cannot fall into poverty due to this. He was either wealthy and remains so, or he was poor and continues so; in either instance, measure H is unchanged. Alternatively, he was below the line but is raised above it by the transfer, which causes the measure “H” to decrease rather than increase. Therefore, a transfer from a poor person to a richer person can never deepen poverty, as shown by “H.”
  • The income gap ratio “I” and the head-count measure “H” overlook the magnitude of income shortfalls and the associated numbers. Unfortunately, this is still insufficient. In both measures, H and I will stay entirely unaltered if a unit of income is transferred from someone poor to someone who is wealthy but still (and remains) poor. Therefore, despite the clear increase in aggregate poverty resulting from this transfer in relative deprivation, any “combined” measure based only on these two must exhibit no response at all to such a change.
  • However, there is a unique circumstance when a combination of “H” and “I” might just about be sufficient. It could be realistic to suppose that “H” and “I” working together could complete the task if we limited our analysis to situations where every poor person makes precisely the same amount of money. Transfers of the sort that have been thought of above demonstrate the insensitivity of the pairing of “H” and “I” won’t fall under the purview of our conversation. 
  • To get beyond “H” & “I’s constraints, Amartya Sen proposed an alternative measure of poverty. He adopted the weighted sum of income differences used to measure poverty. This metric is given by P = H {I + (1-I)G}, when G is the Gini coefficient of income distribution among the poor. The Gini coefficient G of the income distribution among the poor equals zero when every poor person makes the same amount of money, and P equals HI. When the Gini coefficient, which measures income inequality below the poverty level, is used, the Gini measure of poverty “P” grows with increasing income inequality below the poverty line. As a result, the measure P depends on H (which reflects the number of poor), I (which reflects the overall poverty gap), and G. The last one encapsulates the concept of “relative deprivation.” Its inclusion is a direct result of the Ranked Relative Deprivation Axiom, which is concerned with how income is distributed among the poor.
  • Amartya Sen drew attention to the fallacy in the strategy above because it leaves out the severity of poverty. He called the aforementioned strategy “Gross” since it does not consider the pain of the weaker members of society. He spread a novel idea known as the “P index,” which considered the relative scarcity of items in the lower class of society. When measuring the measure of poverty, he gave ranking weight.

Emerging Trends in Poverty Measurement:

  • Poverty evaluations have been conducted in India since before the country gained its independence. They have experienced methodological changes throughout the years. Since the current understanding is that poverty may be measured from various aspects, assessment frameworks have evolved beyond one-dimensional approaches based on calorie requirements, consumer expenditures, and income-based measurements. The old one-dimensional strategy was predicated on food’s calorific availability. The money was then converted into a food basket and calculated using the wholesale pricing of these food items. For rural areas, the national recommendation was 2,400 kcal, and for calculating the poverty level, 2,100 kcal.
  • The Rangarajan Group (2014), the most recent committee to calculate the income, recommended Rs. 972 per month for rural areas and Rs. 1,407 per month for urban areas based on prices from 2011–12. This approach had a lot of problems. First off, the calorific approach to energy consumption disregards the needs of each individual in terms of nutrition. This has made the malnutrition issue that India is currently facing worse. Additionally, the poverty line established using such a one-dimensional approach had long maintained low minimum salaries. This new multi-dimensional poverty indicator is a welcome improvement over the previous one.

Multi-Dimensional Index: 

  • The NITI Aayog published the National Multidimensional Poverty Index in November 2021. The index is a public policy tool for tracking poverty in all its varied forms and is a comprehensive measure of non-income poverty. The National Multidimensional Poverty Index’s adoption as a monitoring tool is a component of the central government’s larger mandate to leverage the global indices, drive reforms and growth to improve living standards, and subsequently improve the nation’s position in the global rankings on these indices. 
  • In India, the concept of multidimensional poverty and how to execute it are not new. The 11th Five Year Plan of India was the first to express the multifaceted nature of poverty and the significance of multiple-deprivation approaches in identifying the poor. Poverty assessments serve as analytical tools that aid in understanding the relationship between the political context and the desired development results. This activity offers recommendations and a road map for creating welfare policies. Identifying households below the poverty line, services, government initiatives, and subsidies could Identifyingtarget low-income families.

Implementing Consumption Expenditure Surveys: 

India’s poverty line estimation has been based on consumption expenditure rather than income levels due to challenges in estimating the incomes of self-employed individuals, daily wage workers, etc., as well as significant seasonal income fluctuations, additional side incomes, and challenges in gathering data in the country’s largely rural and unorganized economy. Consumption expenditures may offer a stronger foundation for evaluating a household’s actual level of living because households may be able to access credit markets or household savings and so somewhat smooth their consumption. Therefore, most Poverty Estimation Committees suggested that household or per capita consumption expenditures were the appropriate statistical approach for estimating poverty in India.

The NSSO conducts surveys on household consumer spending regularly. By accounting for inter-state and inter-regional variations in price changes over time, these data were deemed significantly more accurate for estimating the incidence of poverty at national and sub-national levels. The National Sample Survey Organization’s sample surveys and their estimates of consumption spending exhibit a significant and expanding variation. To account for inter-state and inter-regional disparities in price increases over time and the use of the better recall period included in the NSSO’s surveys, more and more reliance was placed on the sample surveys of homes conducted by the NSSO.


The World Bank defines poverty as a severe lack of well-being with several dimensions. Low salaries and the inability to obtain the fundamental goods and services required for humane survival are examples of this. Poverty estimates are critical for tracking the effectiveness of various government initiatives, particularly social welfare programs that aim to reduce poverty and for scholarly purposes. Rural communities should establish small-scale and cottage enterprises to provide jobs and ensure that income is distributed fairly. Poverty in India cannot be eradicated by only increasing productivity and reducing population growth. The distribution of money should be more evenly distributed, and this must be done.

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Last Updated : 14 Sep, 2022
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