Plus one Economics – Chapter 4
Plus one Economics – Chapter 4

Plus one Economics – Chapter 4

Chapter 4:-


Plus One Economics Chapter 4


Wellbeing of the masses of a nation is a pre-condition for the development of the economy. Everyone needs minimum food, clothing, housing, education and health. Inability to get these is poverty. Poverty comes from lack of income and leads to poor health ending in low productivity and income. Reduction of poverty is the main objective of our economic policy.

What is Poverty ?

Poverty can be defined as a social state in which a section of the society is unable to full fill even its basic neccessities of life. When a large number of people in the society are deprived of basic neccessities of life, we call it as poverty.

Who are the Poor ?

India has one of the largest poor populations in the world. There are poor people both in urban areas and in rural areas. Urban poor include people living in slums, street vendors, rag pickers, domestic maids, un-organised sector workers particularly women, beggars, etc. They live in Kutcha houses of mud walls and thatched roofs. Many do not have even these forms of dwellings.

Rural poor include the landless agricultural labourers who get work only for a few days a year, the un-employed, members of the S.C. and S.T. segments, the illiterate and unhealthy people who do not have any job, etc.

Characteristics of Urban Poor and Rural Poor

  • Illiteracy, ill health and malnutrition.

  • Indebtedness to village money lenders.

  • Unemployed or under employed.

  • No electricity, drinking water and Sanitation facilities.

  • Gender injustice (women suffer more)

  • Unorganised.

  • No assets like land.

  • Majority of the poor belong Socially backward sections.

  • Majority of the SC/ST are Poor.

How are the Poor Identified?

To solve the problem of Poverty, first the poor have to be identified, Before independence, Dadabai Naoroji estimated poverty in India using poverty line. He used the items given to a prisoner and the prevailing prices of these items to calculate a ‘jail cost of living’.

Jail Cost of Living

Prior to Independence, Dadabai Naoroji had discussed the concept of poverty line. He based his calculation on the cost of living in our jails. He studied the menu of a prisoner in the jail and calculated its cost. He based the poverty line on a prisoner’s cost of living.

He supposed that one-third of the population in a society would be children. Half of this would consume very little food. The other half would consume only half of what an adult consumes. Based on this supposition Dadabai gave shape to poverty line.

\( \Bigl( \frac{1}{6} × Nil \Bigr)\) + \( \Bigl( \frac{1}{6} × Half \Bigr)\) + \( \Bigl( \frac{1}{6} × Full \Bigr)\) = \( \frac{3}{4} \)

Therefore Poverty line = \( \frac{3}{4} \)

\( \frac{3}{4} \) of cost of living in the jail is the poverty line.

In post-independent India, there have been several attempts to identify the number of poor in the country. In 1962, the Planning Commission formed a Study Group. In 1979, “Task Force on Projections of Minimum Needs and Effective Consumption Demand” was formed. In 1989 and 2005, “Expert Groups” were also formed. Besides Planning Commission many individual economists have also attempted to identify the number of poor in India.

For defining poverty, people are divided into two: the poor and the non-poor. The poverty line separates the two. But, even among the poor, there are many kinds of poor: the absolutely poor, the very poor and the poor. The various kinds of non-poor are: the middle class, the upper middle class, the rich, the very rich and the absolutely rich.

Categorising Poverty

There are different categories of poverty in India. They are:

  1. Always poor (permanently in poverty).
  2. Usually poor (sometimes they have a little money that temporarily: lift them out of poverty). e.g. Casual workers
  3. Always poor and usually poor constitute chronic poor.
  4. Churning poor (those who move in and out of poverty). e.g. Seasonal workers
  5. Occasionally poor (usually not poor but fall into poverty now and then)
  6. Churning poor and occasionally poor constitute Transient poor.
  7. Never poor are the non-poor.
Poverty Line

The Poverty Line

Poverty line is the cut-off point which divides population as poor and non-poor. The cut-off point can be on a line of distribution of income. People whose incomes are below the poverty line are poor and those whose incomes are above poverty line are non-poor. There are many ways to measure poverty. One way is to deter-mine it by the monetary value (per capita expenditure) of the minimum calorie intake.

The minimum calorie intake is 2400 for a rural person and 2100 for an urban person. (The calorie equivalent in rural areas is higher because people engage in heavy work more in rural areas than in urban areas) The money expenditure necessary for this calorie intake is then calculated.

In 2011-2012 this was estimated as ₹ 816 per person a month in rural areas and ₹ 1000 per person a month in urban areas. This is the poverty line in terms of income. But the government uses Monthly Per Capita Expenditure (MPCE) instead of income of households to identify the poor. Economists state that people below these income levels (MPCE) are treated as below the poverty line. A major deficiency of this poverty estimate is that it treats all the poor equally. It does not distinguish between various categories of poor.

Dollar Poverty Line

World Bank uses $ 1 a day and $ 2 a day poverty lines. People below income of $ 2 a day are regarded as poor and people below income of $ 1 a day are regarded as very poor.

There are many other factors like basic education, health care, drinking water, sanitation along with social and political factors which are to be considered in calculating poverty line. Poverty alleviation programmes should improve human lives by eradicating illiteracy, ill-health and lack of civil and political freedom.

Due to various limitations in the estimate of poverty, some economists and experts in the field made attempts to find alternative methods. Nobel Laureate, Amartya Sen, the famous Indian Economist has developed an index called Sen Index.

Poverty Line Graph

There are various other tools such as Poverty Gap Index and Squared Poverty Gap developed to estimate poverty.

The Number of Poor in India

When the number of poor is estimated as the proportion of people below the poverty line, it is known as Head Count Ratio or poverty incidence ratio.

Head count ratio = \( \mathbf{\frac{Number\,of\,poor}{Total\,population} }\)

In India the official data on poverty is published by the Planning Commission. It is estimated on the basis of consumption expenditure data collected by the NSS (National Sample Survey). The head count ratio in India and the trends in poverty can be seen from the following table:

Table 4.1

Estimate of Poverty in India

Head count ratio: Rural, Urban and Total

Year Rural Urban Total
1973 – 74 56.4 49.0 54.9
1977 – 78 53.1 45.2 51.3
1983 45.7 40.8 44.5
1987 – 88 39.1 38.2 38.9
1993 – 94 37.3 32.4 36.0
1999 – 00 27.1 23.6 26.1
Source: Planning Commission

The table shows that:

  1. Poverty halved from 54 per cent in the mid-seventies to 26 per cent by 2000.
  2. Rural poverty has always been more than urban poverty.
  3. The first major reduction in poverty happened during 1977-78 to 1983.
  4. The biggest reduction in poverty took place between 1993-94 to 1999-2000 when it declined by almost 10 percentage.
Reduction in poverty is credit-worthy. 26.1 per cent of people below the poverty line means more than 26 crore of people are poor. This means that our achievement is not satisfactory and we have a long way to go.

State level trends in poverty show major disparities. Majority of the poor in India are in Orissa, Bihar, Madhya Pradesh, Uttar Pradesh and West Bengal. These states account for 50 per cent of India’s poor. Poverty is low in states like Kerala, Tamil Nadu, Gujarat, Karnataka, Andhra Pradesh, Punjab and Haryana.

What Causes Poverty ?


  • The British rule impoverished India. The colonial policy transformed India into a source of raw material for British industries and a market for British manufactured goods. India’s handicraft industry was destroyed. This de-industrialization of India threw many into unemployment and poverty.

  • The Zamindari system made a few large Zamindars the owners of land. The tenants, subtenants and agricultural workers who worked under them were exploited and impoverished.

  • The land reforms introduced in independent India were successful only in a few states.

  • A sizeable section of the rural poor in India are small and marginal farmers. Their land is not fertile and is dependent on rains. This land has been getting smaller and smaller due to sub-division and fragmentation. Income from these small plots are insufficient to earn a comfortable living. The result is poverty.

  • Some prominent segments of the poor like members of the SCs/STs do not have the skills and capabilities. So they remain poor.

  • Poverty in urban areas is mainly caused by migration. The poor and unemployed migrate from rural areas to urban areas in search of jobs. They get only part time jobs or seasonal jobs or remain casual labourers with low income.


Poverty in India results from social, economic and political inequalities, social exclusion, unemployment, indebtedness and unequal distribution of wealth. The main causes of poverty in India are the following:

  1. Low income: Poverty is caused by the inability to acquire the minimum requirements of living due to low income.
  2. Lack of assets: Poor people do not have the physical, natural, human or financial assets that can generate income. An educated person with skill can earn income. A person with an asset like land can earn income. Lack of these assets causes poverty.
  3. Unemployment: Unemployment and under employment lead to low income and poverty.
  4. Inequalities: Social inequalities cause poverty. Majority of scheduled caste and scheduled tribe population in India are extremely poor. Women bear the brunt of poverty due to gender inequalities.
  5. Isolation and powerlessness: Many among the poor are isolated from the mainstream and are voiceless and powerless. The scheduled tribes are the best example.
  6. Vulnerability: People working in the unorganised sector are exploited by employers denying minimum pay. They often lose jobs.
  7. Law economic growth: In India, economic growth during the first three decades since independence has been low. Hence no employment.
  8. Population explosion: Population explosion causes and aggravates poverty. Poor people beget more children and this aggravates poverty.
  9. Backward agriculture and low level of industrialization make people poor for a long period (1950-1980)
  10. Inflation: People just above the poverty line are pushed into poverty by rising prices, especially of food and essential articles.
The above mentioned factors along with colonial exploitation by the British, unequal caste system, joint family system, etc., led to poverty in India.

Policies and Programmes for Poverty Alleviation

Developed countries, succeeded in removing poverty through sustained economic growth and development. India also thought in the early years of planning to tackle poverty through economic growth. Economic growth generates jobs and income for the people. These benefits of growth trickle down to the poor people. This is known as the ‘trickle down theory’. But, progress has been slow.

We implemented policies like land reforms, progressive taxation, taxing of luxury consumption, subsidising of essential commodities like food grains, free mid-day meals for school children, etc. These produced some desirable effects but were not adequate. So, by the end of the third plan, the government decided to implement the ‘pull up theory‘.

The government of India adopted a three pronged approach to poverty reduction:

  • Relying on growth (growth oriented approach)

  • Employment generation and income through creation of assets and work

  • Providing minimum basic amenities to the people

Growth-oriented approach was based on the trickle down theory. This was the focus of planning in the 1950s and early 1960s. Unfortunately, the growth rate from 1950 to 1980 was low and population growth rate was high. Consequently per capita income growth was very slow.

From the third plan (1961-66) onwards, the focus shifted from trickle down to pull up. The aim was to generate employment and income by creating assets and jobs. The logic of the pull up theory is that we should not wait for the benefits of growth to trickle down to the poor. Instead, the poor have to be pulled up above the poverty line through special anti-poverty programmes. Food for Work Programme was introduced in 1970s.

Provision of minimum basic amenities to the people was the third approach adopted from the fifth plan onwards. To improve the standard of living of the people public expenditure in areas like education, health, sanitation, communication, electricity, nutrition, housing and water supply has to be increased.

Policies and programmes for poverty alleviation are classified into three categories. They are:

  • I. Self-employment and wage employment programmes
  • II. Food security programmes
  • III. Social security programmes

I. Self-employment and Wage Employment Programmes

Some of the important self-employment and wage employment programmes for poverty alleviation are given below:

  1. Swarnajayanti Gram Swarozgar Yojana (SGSY)

    Minor changes were brought in the IRDP introduced in 2nd October 1980 and the revised programme is called Swarnajayanti Gram Swarozgar Yojana.

    The IRDP had several allied programmes such as:

    • a. TRYSEM (Training of Rural Youth for Self Employment)
    • b. DWCRA (Development of Women and Children in Rural Areas)
    • c. GKY (Ganga Kalyan Yojana)
    • d. MWS (Million Well Scheme)
    • e. SITRA (Supply of Improved Tool Kits to Rural Artisans)
    Originally known as the IRDP (Intensive Rural Development Programme), Swarnajayanti Gram Swarozgar Yojana assisted families below the poverty line to find self employment. Assistance was given to individuals and families. Since this programme led to leakages and corruption, its focus was changed. Now the beneficiaries are encouraged to form Self Help Groups (SHGs). Initially, SHGs are encouraged to save money and lend among themselves. Later, financial assistance is provided to SHGs through banks. SHGs can decide to whom the loans are to be given.

    Government first concentrated on creating employment opportunities for the people of India. SGSY was the most important self employment programme for poverty alleviation. It was started on April 1, 1999. Now it is known as NRLM (National Rural Livelihoods Mission). NULM (National Urban Livelihoods Mission) was also started for the urban poor.
  2. Prime Minister’s Rozgar Yojana (PMRY)

    The PMRY focuses on the educated unemployed. Under the PMRY educated unemployed persons from low income families are given financial assistance for self employment. The scheme was launched on the auspicious day of 2nd October, 1993, the birth Anniversary of Mahatma Gandhi all over the country.
  3. Rural Employment Generation Programme (REGP)

    This programme aims at creating self-employment opportunities in rural areas and small towns. This is being implemented by the Khadi and Village Industries Commission (KVIC). The Khadi & Village Industries Commission (KVIC) launched the Rural Employment Generation Programme (REGP) on 1st April, 1995 for generation of two million jobs under the KVI sector in the rural areas of the country. Unemployed Persons are eligible to get bank loans to set up small industries.
  4. Swarna Jayanti Shaheri Rozgar Yojana (SJSRY)

    The SJSRY is both a self-employment and wage employment programme. SJSRY came into effect on 1 December 1997. Its focus is on urban areas.
  5. Jawahar Rozgar Yojana (JRY)

    Jawahar Rozgar Yojana was launched on 1st April 1989 in the Seventh Five Year Plan by the veteran Prime Minister Lt. Atal Bihari Vajpayee. It was established by merging the National Rural Employment Programme (NREP) and Rural Landless Employment Guarantee Programme (RLEGP). JRY aims at providing gainful employment to the unemployed in rural areas.
  6. Nehru Rozgar Yojana (NRY)

    NRY is the urban counterpart of JRY. It aims to provide gainful employment for the unemployed in urban areas.
  7. National Rural Employment Guarantee Programme (NREGP)

    In 2005, the Indian parliament passed the National Rural Employment Guarantee Act. This Act led to the NREGP. It guaranteed wage employment to those who are ready to work. Employment is guaranteed for 100 days a year at the minimum wage rate. NREGP has now been renamed as Mahatma Gandhi Rural Employment Guarantee Programme (MGNREGP). In 2013-14, 5 crore households got employment opportunities under this programme.
National Food for Work Programme (NFWP) and Sampoorna Grameen Rozgar Yojana (SGRY) are other important wage employment programmes.

II. Food Security Programmes

Even with expanded employment opportunities, the poor could not meet their basic minimum requirements. Therefore, from the fifth plan onwards programmes to provide basic minimum needs were taken up. The poor are given at least certain minimum standards by social consumption and investment in the form of essential food grains, education, health, nutrition, drinking water, housing, communication and electricity.

To provide food security, the following programmes are being implemented:

  1. Public Distribution System (PDS)

    Under PDS food grains are distributed at subsidised rates through ration shops.
  2. Integrated Child Development Schemes (ICDS)

    Under ICDS, mothers and children below six are given food assistance.
  3. Mid-Day meals at Schools (MDMS)

    Under MDMS children are given free cooked meals in schools.
  4. Annapurna Scheme (AS)

    This scheme covers poor senior citizens not getting old age pension, Poor senior citizens are given 10 kilograms of food grains free of cost under this scheme.
  5. Antyodaya Anna Yojana (AAY)

    AAY targets very poor families. Food grains are given at highly subsidised rates under this scheme.
Programmes like Pradhan Mantri Gram Sadak Yojana (PMGSY), Pradhan Mantri Gramodaya Yojana (PMGY), Valmiki Ambedkar Awas Yojana, etc., were also implemented to provide nutritious food for the people of India.

III. Social Security Programmes

Social security projects for those in the informal employment sector are given below:

  1. Aam Aadmi Bima Yojana

    It gives insurance protection to the workmen employed in informal occupations.
  2. Indira Gandhi National Old Age Pension Scheme

    It gives ₹ 500 to each member aged 65 and above belonging to BPL families. This programme was started in 2007 under the ministry for rural development.
  3. Rashtriya Swastika Bima Yojana

    This provides health insurance to members of BPL sector. It was started in 2008. It is also known as National Health Insurance Programme.
  4. Atal Pension Yojana

    This programme was intended to provide pension in unorganised sector for the age group 18 to 40.
  5. Janasree Bima Yojana

    This is an insurance programme providing insurance cover for BPL families.
  6. Pradhan Mantri Jeevan Jyoti Bima Yojana

    This is a life insurance programme with a very low cost. ₹ 2 lakh life cover will be provided under the scheme at a premium of only ₹ 330 a year. Persons with bank accounts in the age group 18 to 50 are eligible.
  7. Pradhan Mantri Suraksha Bima Yojana

    This scheme provides accidental death cum disability cover of ₹ 2 lakh for a premium of only ₹ 12 a year.
  8. National Social Assistance Programme

    The National Social Assistance Programme gives pension to the elderly poor who do not have anyone to look after them. Widows and poor women are also covered by this scheme.

Poverty Alleviation Programmes – A Critical Assessment

Poverty alleviation programmes suffer from some deficiencies. Some important deficiencies are:

  • Resources allocated for various programmes are not sufficient. The magnitude of poverty is so large that substantially more resources are required.

  • The implementing agencies (bureaucracy) are inefficient and corrupt.

  • Programmes are fraught with leakages. Rajiv Gandhi once remarked in the parliament that when the government spends ₹ 100, only ₹ 8 reaches the ultimate beneficiary. This kind of leakages make the programmes very inefficient.

  • Benefits of some programmes have been appropriated by the non-poor.


For continuous reduction in poverty, Indian economy should achieve sustainable high growth rates. The growth should be inclusive. Poor people should participate in growth and benefit from it. Self employment, wage employment and provision for basic amenities should continue. Programmes should be implemented efficiently without wastes and leakages. Continuation of high growth rate is important because only growth can generate the required resources.

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