Indian Economy - Poverty



  • Poverty in India is deep rooted. The 200 years under British further intensified it.

  • After independence, several programs have been brought forward through Five-Year Plans in an attempt to alleviate poverty.

  • Dadabhai Naoroji was the first person who talked about the concept of Poverty Line before independence.

  • Dadabhai Naoroji used ‘jail cost of living’ formula to calculate the poverty line.

  • The Task Force on Projections of Minimum Needs and Effective Consumption Demand constituted by the Planning Commission in 1979 also attempted to measure poverty.

  • Poverty is further categorized on parameters such as absolute poor, very poor and poor. Another categorization is based on parameters such as always poor, usually poor, chronic poor, churning poor, etc.

Poverty Measurement

  • To demarcate the poverty line normally per capita calorie intake parameters is used, under which the minimum calorie intake (which is 2,400 calories/day for people in rural areas and 2,100/day for people in urban areas) is considered.

  • Many economists criticize the minimum calorie intake technique of measuring poverty because it does not solve many issues and also does not identify the real poor people.

  • To remove the drawbacks of this technique, many other techniques were invented; significant of them are −

    • Sen Index (by Nobel Laureate economist Amartya Sen),

    • Poverty Gap Index, and

    • Squared Poverty Gap.

  • Head Count Ratio is the number of poor as the proportion of people living below the poverty line.

  • In 1973-74, there were more than 320 million people below poverty line; the number has come down to 270 million in 2011-12. Likewise, more than three-fourth of the country’s poor people live in rural areas.

  • Many of the states in past three and four decades improved and the ratio of poverty declined; however, four states i.e. Odisha, Madhya Pradesh, Bihar, and Uttar Pradesh still have poverty levels, less than the national poverty level.

Reasons of Poverty

  • The major causes of poverty in India are −

    • Illiteracy
    • Unemployment
    • Unequal distribution of wealth
    • Excessive population
    • Discrimination on the basis of caste and religion, etc.
  • The farmers’ plight is worst in many parts of India. There is an increase in the number of farmers’ suicides especially in Maharashtra, Telangana, and Andhra Pradesh.

  • There are many reasons that instigate the farmers to take this extreme step −

    • High interest rate loans
    • Lack of state investment
    • Low productivity
    • Availability of subsidised or low rate foreign products
    • Lack of infrastructure
    • No advice for farmers
    • Poor irrigation systems
    • Spurious seeds and pesticides
    • Crop failure (because of drought), etc.

Poverty Reduction Programs

  • Starting from the first five-year plan, the government has kept on introducing various poverty reduction programs and policies.

The Concept of Trickledown Theory

  • Growth oriented approach was adopted with the assumption that all sectors would grow, and percolate into every level of society and help to remove poverty.

  • But even after such growth orientation, the condition has not improved, rather the gap between rich and poor has further widened.

  • The green revolution further worsened the condition by creating disparity between large and small scale farmers.

  • A special program — Food for Work aimed at eradication of poverty was launched in the 1970s.

  • Many other programs including self-employment programmes (listed below) were also launched around the same time −

    • Rural Employment Generation Programme (REGP)
    • Prime Minister’s Rozgar Yojana (PMRY)
    • Swarna Jayanti Shahari Rozgar Yojana (SJSRY)
  • Later in 1990s, the government changed the policy and started promoting Self-Help Groups (SHG). It primarily encourages people to save their own money and lend among themselves. At a later stage, government through banks will facilitate partial financial support.

  • Swarnajayanti Gram Swarozgar Yojana (SGSY) is an example of SHG. SGSY has now been restructured as National Rural Livelihoods Mission (NRLM).

Swarnajayanti Gram Swarozgar Yojana
  • In the year 2005, the Parliament passed a new Act — Mahatma Gandhi National Rural Employment Guarantee Act. This Act guaranteed wage employment to those rural households whose adult members volunteer to do unskilled manual work for a minimum of 100 days in a year.

  • During the period 2013-14, about five crore households got employment opportunities and benefitted from this act.

  • Further, three major programs have been launched to improve the nutritional status of the poor −

    • Public Distribution System
    • Integrated Child Development Scheme
    • Midday Meal Scheme
  • Some other programs launched for the better of the people in rural areas are −

    • Pradhan Mantri Gram Sadak Yojana
    • Pradhan Mantri Gramodaya Yojana, and
    • Valmiki Ambedkar Awas Yojana

Reasons of Failure

  • Though a number of poverty reduction programs have been launched by the government the outcome has not been satisfactory enough. There are many areas, which are facing segregation and are being deprived of basic development. The reasons for the underperformance of these programs are −

    • Poor execution
    • Systemic corruption
    • Unequal distribution of land and wealth
Reasons of Failure
  • Pressure from the local elite
  • Lack of participation by the poor people, etc.
  • This calls for participation of people from every stratum of the society. This will further facilitate inclusive growth and successful poverty eradication. For this, we need to encourage and educate people to participate from the grass root level.

The following table illustrates the poverty ratio −

  Poverty Ratio
Year Rural Urban Total
1993-93 50.1 31.8 44.3
2004-05 41.8 25.7 37.2
2011-12 25.7 13.7 21.9

Useful Video Courses


Class 11Th Indian Economics

59 Lectures 6 hours

Madhu Bhatia


Class 12Th Indian Economics

95 Lectures 9.5 hours

Madhu Bhatia


ClearSpeak's English pronunciation for INDIAN ORIGIN accents

21 Lectures 16.5 hours

Alison Kimi Kimble


Indian Accounting Standards (Ind AS) Certification Training

58 Lectures 41 hours



Indian Energy Scenario- EA/EM Exam

7 Lectures 1 hours

The GT Academy