Measures of poverty | Economics Optional Notes for UPSC PDF Download

Introduction

Poverty is defined as a lack of sufficient assets to cover basic requirements such as food, clothes, and habitat. Poverty, on the other hand, is much more than a lack of resources. Poverty is defined by the inability to engage in outdoor recreation, the inability to send kids on a field trip with their friends or to a special event, and the inability to pay for treatment for sickness. These are all the expenses that come with being poor. Anyone that is hardly able to afford both food and housing is unable to contemplate these additional costs.

Measurement Methods for Poverty

The assessment of poverty serves as a means to ascertain the extent to which individuals in a country or region lack sufficient income or resources to fulfill their fundamental needs for a reasonable standard of living. There exist several approaches to gauge poverty:

Income-Based Measurement:

• The predominant method for measuring poverty revolves around income. This approach scrutinizes the earnings of individuals or households, deeming them impoverished if their income falls below a specified threshold. The threshold's determination varies across countries and regions, adjusting for factors such as family size. For instance, in the United States, a family of four might be considered in poverty if their annual income is around $25,000.

Consumption-Based Measurement:

• Diverging from a sole focus on income, the Consumption-Based Measurement technique takes into account individuals' consumption or expenditures on goods and services. This method posits that what people actually utilize provides a more accurate gauge of their well-being than their income alone.

Multidimensional Poverty Index (MPI):

• The Multidimensional Poverty Index (MPI) methodology surpasses a sole emphasis on income and encompasses various facets of individuals' lives. It evaluates factors such as access to education, healthcare, clean water, and housing. By assessing deprivation across these diverse dimensions, the MPI generates an overarching poverty score, providing a more comprehensive understanding of individuals' well-being.

Absolute Poverty and Relative Poverty

Absolute Poverty and Relative Poverty are the two common poverty measures that are used to measure poverty. Both of these measures and the method of measuring poverty by them are explained below:

Absolute Poverty: 

• This notion simply considers how much money is required to cover fundamental necessities such as food, clothes, home, potable water, education, and medical services. People who live below the above mentioned poverty level are unaffected by this sort of poverty, even if their country is economically powerful. To put it another way, irrespective of how wealthy and powerful the US economy seems, individuals struggling in absolute poverty do not get benefits from it.

Relative Poverty: 

• It is the state of being deprived of the basic minimum of earnings required to sustain the average level of living in a society wherein they reside. As a result, even people and families living in relative poverty, or deprivation, have such sums of money, which is still insufficient to meet fundamental needs. This sort of poverty, on the other hand, defines poverty in relation to the economic position of several other people in society. Which means it fluctuates in response to the nation’s economic development.

Global Poverty Line

• The Global Poverty Line serves as a universally recognized benchmark for assessing extreme poverty on a global scale. Entities such as the World Bank adhere to this standard, defining extreme poverty as existence on an income of less than $1.90 per day.
• The significance of measuring poverty lies in its ability to assist governments and organizations in identifying individuals requiring aid, directing resources efficiently, and monitoring advancements in poverty reduction. It is important to acknowledge that no solitary measure encapsulates the entire intricacy of poverty, and divergent methods may produce disparate outcomes. Therefore, employing multiple measures and indicators is a common practice to obtain a comprehensive understanding of poverty within a specific geographical area.

Conclusion

Numerous experts argue in favor of adjusting India's poverty line to synchronize with the dynamic economic environment and the evolving requirements of the populace. They suggest establishing a poverty threshold that guarantees individuals the ability to meet fundamental needs like nourishment, housing, and education. Furthermore, these experts advocate a transition towards government investments in essential public services such as education, healthcare, and infrastructure, asserting that this approach is more effective in reducing poverty than relying on subsidies.