ICAI Notes 6.1 - Poverty CA Foundation Notes | EduRev

Economics for CA CPT

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CA Foundation : ICAI Notes 6.1 - Poverty CA Foundation Notes | EduRev

The document ICAI Notes 6.1 - Poverty CA Foundation Notes | EduRev is a part of the CA Foundation Course Economics for CA CPT.
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Learning Objectives

  • know the difference between absolute poverty and relative poverty.
  • understand how poverty is measured in India.
  • be familiar with the causes of poverty in India
  • know the government’s programmes for poverty alleviation.

Poverty is a widespread social evil in underdeveloped countries of the world, particularly in Asia and Africa. There is no standard definition of poverty for all the countries of the world. Some countries approach poverty in the absolute terms and some countries approach poverty in relative terms.


When poverty is taken in absolute terms and is not related to the income or consumption expenditure distribution, it is absolute poverty. On the other hand, when poverty is taken in relative terms and is related to the distribution of income or consumption expenditure, it is relative poverty. The concept of absolute poverty is relevant for the less-developed countries. To measure absolute poverty, absolute norms for living are first laid down. These relate to some minimum standard of living. These may be expressed or measured in terms of income/consumption expenditure. Given this, one classifies all those as poor who fall below the standard. The number or percentage of such poor in the country’s population gives the measure of poverty. The concept of relative poverty is more relevant for the developed countries. According to the relative standard, income distribution of the population in different fractile groups is estimated and a comparison of the levels of living of the top 5 to 10 per cent with the bottom 5 to 10 per cent of the population reflects the relative standard of poverty. Gini co-efficient are often used for measuring poverty in relative sense. In India we use the concept of absolute poverty for measuring poverty. For this a minimum level of consumption standard is laid down (known poverty line) and those who fail to reach this minimum consumption level are regarded as poor.


It is generally agreed that only those people who fail to reach a certain minimum level of consumption standard should be regarded as poor. Different economists have defined poverty line in different ways. The Planning Commission has adopted the definition provided by the ‘Task force on Projections of Minimum Needs and Effective Consumption Demand’ according to which, a person is below the poverty line if his daily consumption of calories is less than 2400 in rural areas and 2100 in urban areas. On the basis of this, the monthly cut- off points turned out to be Rs. 76 for rural areas and Rs. 88 for urban areas at 1979-80 prices.

For some times, these cut offs were used by converting them into current rupees using the implicit price deflator of consumption in the National Accounts. This process had the disadvantage of ignoring interstate differences in price levels as well as variations from state to state in urban to rural price differentials. These problems were dealt with by an Expert Group in 1993 whose recommendations for new poverty line were adopted by the Planning Commission. These “Expert Group” poverty lines are now used in India. According to these procedures, poverty lines are defined at the State level, separately for rural and urban households. Each line is updated by a state specific price index, the state consumer price index for agricultural labourer for rural lines and the state consumer price index for industrial workers for urban lines. There is no country wide poverty line as such. The poverty ratio at all-India level is obtained as the weighted average of the state-wise poverty ratio.

The Planning Commission has been estimating the incidence of poverty at the national level as well as state level. For this, it uses large sample surveys on household consumer expenditure conducted by the National Sample Survey organisation (NSSO) once in five years. As such NSSO uses two types of recall periods – uniform recall period (URP) and mixed recall period (MRP). While the URP uses 30-day recall/ reference period for all items of consumption, MRP uses 365 day recall/reference period for five infrequently purchased non-food items namely, clothing, footwear, durable goods, education and institutional medical expenses. Table 8 shows incidence of poverty based on NSS 61st Round of consumer expenditure (2004-05).

Table 8: Incidence of Poverty (per cent)

Sl. no.Category1993-942004-05
 By URP Method  
3.All India36.0 
 By MRP Method  
6.All India26.121.8

Source : Economic Survey 2008-09

The URP data places the poverty ratio at 28.3 per cent in rural areas, 25.7 per cent in urban areas and 27.5 per cent for the country as a whole in 2004-05. The corresponding poverty ratios for MRP data are 21.8 per cent for rural areas, 21.7 per cent for urban areas and 21.8 for the country as a whole. The percentage of poor in 2004-05 estimated URP consumption distribution of NSS 61st round of consumer expenditure data are comparable with the poverty estimates of 1993 (50th round) which was 36 per cent for the country. The percentage of poor in 2004-05 estimated from MRP consumption distribution of NSS 61st round of consumer expenditure data are roughly comparable with the poverty estimates of 1999-2000 (55th round) which was 26.1 per cent as a whole (Table 8).

It has also been calculated that for the country as a whole the per capita consumption expenditure of 68 per cent population in 1999-00 was Rs 20 per day. This percentage reduced to 60.5 of population in 2004-05. While poverty rates have declined significantly, the malnutrition has remained stubbornly high. Around 46 per cent children below 3 years of age were underweight and malnourished in 2004-05 compared to 47 per cent in 1998-99.

The Tenth Plan had set a target of reduction in poverty ratio to 19.3 per cent by 2007 and to 11 per cent by 2012. The targets for rural and urban poverty in 2007 were 21.1 per cent and 15.1 per cent respectively.


Economic Causes : Various causes of poverty can be classified under economic, political and social heads. Economic backwardness or stagnation is often the characteristic of the countryside of a developing country like India where majority of the population lives. Agriculture is the main occupation of the rural poor and contributes 17 per cent of the GDP. Yet the income it provides to agricultural workers is substantially below average and almost at the subsistence level. There are a number of factors which are responsible for low income in the agricultural sector such as small size of land holdings, inadequate irrigation facilities, lack of enough financial resources needed for investment for ensuring development and raising productivity. Thus, productivity in small farms is generally low resulting in very low levels of returns. The condition of landless agricultural labourer is worse. The economic conditions of persons engaged in nonagricultural activities in the rural sector are equally dismal.

Political and Social Causes : Political vested interests are also equally responsible for widespread poverty in the economy. But whereas these interests can be countered by following the right type of policies, social factors responsible for promoting poverty are more severe and are interwoven in the web of society itself. Inhibitions and handicaps arising from caste and religion are hard to overcome and require considerable effort by way of propaganda and education through mass media, reorientation of education system and so on.

Other Causes : Apart from these, other factors such as family size and family composition, poor levels of education and skills, lack of motivation and will to get out of the rut of poverty and misery, the feudalistic system of bonded labour in some parts of the country and so on, are also responsible for depressed standards of living among people.


Poverty alleviation and raising the average standard of living have always been stated as the central aims of economic planning in India. The plan strategies to achieve these aims can be broadly divided into three phases. In the first phase, the prime emphasis was on growth. It was expected that growth through improvement in infrastructure and heavy industries will take care of the problem of unemployment and poverty. In the second phase, beginning with Fifth Plan, poverty alleviation came to be adopted as an ‘explicit objective’ of economic planning. Several specific programmes for poverty alleviation and employment generation directed towards selected target groups were launched. In the third and final (present) phase, emphasis shifted to ‘growth’ and ‘poverty alleviation’ as two complementary actions. The various recent programmes for poverty alleviation are as follows. The earlier such programmes have been streamlined and merged into these programmes.

(1) Pradhan Mantri Gram Sadak Yojana (PMGSY) : The PMGSY was launched in December, 2000 to provide road connectivity through good all weather roads to all the eligible unconnected habitations in the rural areas by the end of the Tenth Plan. Upto March, 2009, a total length of 2,14,281 km of road works had been completed.

(2) Indira Awas Yojana (IAY) : This is a major scheme for giving financial assistance for construction of houses to be given to the poor living in rural areas. Up to December 2006, about 153 lakh houses were constructed/upgraded under the scheme. During 2007-08, around 9.4 lakh houses were constructed and during 2008-09, around 21 lakh houses were constructed under the scheme.

(3) Swaran Jayanti Gram Swarozgar Yojana (SGSY) : This was introduced in April, 1999 as a result of restructuring and combining the Integrated Rural Development Programme (IRDP) and allied programmes and Million Wells Scheme (MWS). It is the only selfemployment programme for the rural poor. It aims at bringing the self employed above the poverty line by providing them income generating assets. Upto March, 2009, about 121 lakh swarojgaries have been assisted.

(4) Sampoorna Grameen Rojgar Yojana (SGRY) : This programme was launched in 2001. This programme aims at (i) providing wage employment in rural areas (ii) food security and (iii) creation of durable community, social and economic assets. The earlier programmes of the Employment Assurance Scheme (EAS) and Jawahar Gram Sammridhi Yojana (JGSY) have been merged with this programme since April, 2002.

(5) National Rural Employment Guarantee Scheme (NREGS) : National Food for Work Programme was launched in November, 2004 in 150 most backward districts of the country. The objective was to intensify the generation of supplementary wage employment. The programme was open to all rural poor who were in need of wage employment and desired to do manual unskilled work. The National Rural Employment Guarantee Act was notified in September, 2005 and the scheme was launched in February, 2006. The on-going programmes of Sampoorna Grameen Rozgar Yojana (SGRY) and National Food For Work Programme (NFFWP) were submerged in it. The objective of the Act is to enhance the livelihood security of the people in rural areas by generating wage employment through works that develop the infrastructure base of that area. The Act wants every State to make a scheme for providing not less than 100 days of guaranteed employment in a financial year to every households in the rural areas covered under the scheme and whose adult members volunteer to do unskilled manual work subject to the conditions laid down in the Act. During 2008-09, more than 4.47 crore households were provided employment under the scheme. This is a significant jump over the 3.29 crore households covered under the scheme during 2007-08.

(6) The Swarna Jayanti Shahkari Rozgar Yojana (SJSRY) : The SJSRY which came into operation from December’97, sub-summing the earlier urban poverty alleviation programmes viz., Nehru Rozgar Yojana (NRY), Urban Basic Services Programmes (UBSP) and Prime Minister’s Integrated Urban Poverty Eradication Programme (PMIUPEP). The scheme aims to provide gainful employment to the urban unemployed or underemployed poor by encouraging the setting up of self-employment ventures or provision of wage employment. Under the scheme, 0.44 lakh urban poor were assisted to set up micro enterprises and 0.60 lakh urban poor were imparted skill training during 2007-08. In 2008-09, there was a significant jump in the number of beneficiaries under the scheme as nearly 9.5 lakh urban poor were assisted to set up micro enterprises and around 15 lakh urban poor were imparted skill training.


In India, poverty is wide spread. Nearly one-fourth of the population is below the poverty-line. Reduction of poverty as a national objective had been mentioned in every five-year plan but serious efforts towards it were started only in the Fifth Plan. Now, there are many povertyreducing employment schemes in India.  

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