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Describe how the poverty line is estimated in India – Economics | Management Notes

Describe how the poverty line is estimated in India

Meaning of Poverty

A condition of poverty is one in which a person or family lacks the financial resources to meet a basic standard of living. Policymakers and economists define “absolute” poverty as the difference between consumption expenditure and a threshold called the “poverty line”. According to the official poverty line, the price of the goods in a “poverty line basket” (PLB) represents the expenditure incurred to acquire those goods. Poverty can be measured by the number of people living below their poverty line (the head count ratio can be used to calculate the incidence of poverty). The “depth” of poverty measures how far below the poverty line a person is. When someone is living in absolute poverty, they lack the means to obtain the commodities they need to sustain themselves. A relative poverty level is one where the standard of living is lower than the economic status of the population within the same area.

Difference between Absolute Poverty and Relative Poverty

Absolute PovertyRelative Poverty
Families or households in absolute poverty have incomes below the defined level and so cannot afford basic subsistence.Relative poverty, on the other hand, can refer to a life that is significantly below the minimum acceptable standard of living for that society or region.
A person whose income is at or below the minimum level needed to meet their basic needs is considered to be in absolute poverty. Relative poverty indicates a person’s economic status in relation to others in society.
Over time, absolute poverty remains the same.Relative poverty, on the other hand, changes over time, with increases in income and living standards.
The poverty line can be used to measure absolute poverty. The Lorenz curve and Gini coefficient measure relative poverty, however.
It is not possible to completely eradicate absolute poverty.There is a small margin of success where its eradication is concerned.
In developing countries, absolute poverty is a common problem.Relative poverty is a common problem in developed countries.

Describe how the Poverty Line is estimated in India

Describe how the Poverty Line is estimated in India

India’s widespread poverty was caused by a number of factors. Historically, British colonial rule led to low levels of economic development. Until the early 1980s, growth was slow. As a result, fewer jobs were available and incomes grew slowly. At the same time, the population grew rapidly. As a result, the per capita income growth rate was very slow. Income inequality has also contributed to high poverty rates. The inequal distribution of land and resources is one of the major reasons for this. The issue has not been meaningfully addressed despite many policies.

Income and consumption levels are commonly used to measure povertyline in India. Poor people are defined as those whose income or consumption falls below a certain “minimum level” necessary to meet their basic needs. Among the factors considered to determine the poverty line in India are the minimum requirement for food, clothing, footwear, fuel and light, as well as educational and medical needs. Prices in rupees are multiplied by the physical quantities. To estimate the poverty line, the current formula takes into account the calorie requirement. A family of five earning less than Rs. 1,640 per month is considered to be living below the poverty line. The urban poverty line is Rs. 2,270 per month. In rural areas, the expected calorie intake is 2400 calories per person, while in urban areas, it is 2100 calories. Those who consume less than this amount are considered to live below the poverty line.

Major Reasons for Poverty in India

Major Reasons for Poverty in India

  • During the colonial period, British policies were not beneficial to the local economy. During that period, traditional handicrafts declined and modern industries could not develop. In India, at the time of independence, this is considered one of the leading causes of abject poverty.
  • Growth remained low until the 1980s. This was accompanied by a high population growth rate, which led to an increase in poverty.
  • Although the Green Revolution helped revive the agricultural sector, its effect was limited to certain parts of the country, mainly Punjab, Haryana and Western Uttar Pradesh.
  • Employment opportunities in the secondary sector were insufficient. Rural migrants were forced to take on unskilled work.
  • India’s poverty is also caused by income inequality. Despite land reform initiatives, the major portion of land remains in the hands of a select few and a large portion of farmers are landless.
  • Sociocultural factors play a significant role in poverty. Due to socio-cultural pressures, Indians spend a lot of money on marriage and other rituals. They drain their savings as a result.

Do you think the poverty estimation is appropriate?

Do you think the poverty estimation is appropriate?

The current method of estimating poverty is not appropriate. Currently, consumption and income are the only factors taken into account.The amount that is set as the poverty line does not include the margin for price fluctuations and price rises that are constant. There should be some corrections for inflation and market fluctuations. It does not include other factors such as illiteracy level, general resistance, job opportunities, and safe drinking water or sanitation. The assessment of poverty should take into account social exclusion and vulnerability.

Which of the following statements most likely lies within the realm of microeconomics?

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