POVERTY

Poverty is a state or condition in which a person or community lacks the financial resources and essentials to
enjoy a minimum standard of life and well-being.
TYPES OF POVERTY

I. ABSOLUTE POVERTY
Absolute Poverty refers to the total number of people living below the poverty line which are not able to access the basic
standard of living to satisfy their basic needs.
Absolute poverty is when household income is below a certain level. This makes it impossible for the person or family to
meet basic needs of life including food, shelter, safe drinking water, education, healthcare, etc.
In this state of poverty, Economic growth automatically reduces absolute poverty.
Absolute poverty compares households based on a set income level. And this level varies from country to country
depending on its overall economic conditions.
When a country experiences economic growth, incomes generally rise. Because the absolute line stays fixed, growth
naturally pushes people's incomes above that threshold, reducing absolute poverty.
Absolute poverty may be measured by the number or head count (H) of those whose incomes fall below the absolute
poverty line. The head count refers to the fraction of total population (N).
Head Count Index = H/N
II. RELATIVE POVERTY
Relative poverty refers to the condition where people lack the minimum income needed to maintain the
average standard of living in their society. Relative Poverty refers to poverty of people in comparison to other
people, regions or nations.
Relative poverty is defined as households earning less than 50% - 60% of the average national income in the
country. This group of households cannot afford the normal activities and opportunities that average earners have
access to. It is the inability to live the life that your specific society considers normal.

Example: If the average income is $100:

60% of average = $60.
Households earning less than $60 are in relative poverty.

Relative poverty is relative to the economic climate.

➢ In a rich economic climate (higher per capita income): The average standard of living is high (e.g., access to
high-speed internet, a personal vehicle, higher education). If a household cannot afford these standard items,
they suffer from social exclusion and are classified as living in relative poverty. Relative poverty is a form of
social exclusion.

➢ In a poorer economic climate (lower per capita income): The average standard of living is lower. The
benchmark shifts downward, so a family with the exact same purchasing power, as the household in Scenario
A, are no longer considered relatively poor.
Relative Poverty is closely associated with the problem of inequality.

Absolute poverty can be eliminated by ensuring everyone has minimum threshold income, enough calorie
intake and such, but relative poverty can only be eliminated by reducing income inequality.

➢ If a country's GDP grows massively but 95% of the gains go to the top 10% of earners (increase in income
inequality). The average shifts up, leaving the poorest households further and further behind.
Even if the poor are making slightly more money than before, the gap between them and the average rest of
society has widened. This widening gap is inequality, and it directly causes relative poverty to rise.

➢ If a country's GDP grows and the gains go disproportionately to the bottom 20% of earners (decrease in
income inequality). The incomes of the poorest households grow much faster than the national average,
closing the economic distance between them and the average. Even if income of the rich increases a bit from
before, the gap between the poorest and the average rest of society has narrowed. This narrowing gap is a
reduction in inequality, and it directly causes relative poverty to fall.
Household A (Poor): $20,000
Household B (Rich): $80,000
Total Income: $100,000
Average Income ($100,000 ÷ 2): $50,000
Relative Poverty Line (60% of $50,000): $30,000

Proportional Growth Pro-Rich Growth Pro-Poor Growth

Household A: $24,000 (grew by 20%). Household A: $22,000 (grew by 10%). Household A: $35,000 (grew by 75%)
Household B: $96,000 (grew by 20%). Household B: $120,000 (grew by 50%). Household B: $88,000 (grew by 10%)
Total Income: $120,000 New Average Income ($142,000 ÷ 2): New Average Income ($1,23,000 ÷ 2):
Average Income ($120,000 ÷ 2): $71,000 $61,500
$60,000 New Relative Poverty Line (60% of New Relative Poverty Line (60% of
Relative Poverty Line: $36,000 (grew $71,000): $42,600 $61,500): $36,900
by 20%).
Rise in income of rich is more than rise in Rise in income of poor is more than
Relative poverty remains. income of poor. Rise in income of rich.
Household A's income rises to $24,000, Relative poverty worsens, even though Relative poverty decreases, because
which is still below $36,000. the poor household's income increased the income gap between the poor and
slightly. the average narrows substantially.
Income inequality remains unchanged Household A earns only $22,000, much Household A now earns $35,000,
because both incomes grow farther below the poverty line. which is much closer to the relative
proportionally. poverty line than before.
Income inequality increases.
Income inequality decreases.
ABSOLUTE POVERTY RELATIVE POVERTY
Inability to maintain the average standard of living in
Inability to meet basic survival needs.
the society.
Measured based on Fixed income threshold (e.g.,
Measured based on median income in a society.
$3.00/day by World Bank).
One can be meeting his or her biological needs but
This kind of poverty focusses on the basic needs of an
still be considered as poor under relative poverty
individual.
measurement.
Consideration to the income level is less in this type.
The income level is highly considered in absolute People who have good amount of income and can
poverty. meet their basic needs but still can be considered
poor under the relative poverty model.
Universal and unchanging over time. Varies between societies and changes over time
Measures survival threshold. Measures inequality and social exclusion.
Absolute poverty can be reduced by economic Relative poverty is directly caused by and closely
growth. associated with income inequality.
III. SITUATIONAL POVERTY
Situational poverty is a period of temporary financial hardship caused by a specific crisis, life event, or adverse change in
circumstances. People or families can be poor because of some adversities like natural disasters, medical emergencies,
economic shocks, layoffs, departure of primary income earner.
Sometimes, people can help themselves out of this situation quickly if they are given a bit of assistance, as the cause of their
situation was just one unfortunate event.
EXAMPLE:
The Covid-19 pandemic, which was majorly a health crisis, quickly translated into an economic and labour market crisis. The
lockdown associated with the first phase (between March - May 2020), brought a complete standstill to the economy and
caused millions of workers to lose their job and mass exodus of migrant workers to India’s villages.
During the peak of the first strict nationwide lockdown,
• the urban unemployment rate for individuals aged 15 and above spiked to 20.8% in the April–June 2020 quarter, compared
to 9.1% in the same quarter the previous year.
• Average all-India household income dropped between 30 to 38% during the months of the nationwide lockdown of April
and May 2020.
• Daily wage workers bore the brunt of the shock with an immediate 75% drop in earnings during the early lockdown, while
salaried employees predominantly faced partial layoffs or wage cuts.
The severe drop in livelihoods caused poverty to more than double during the lockdown period. The expansion of the
Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), which provided free food grains to over 800 million citizens, played a
measurable role in preventing mass nutritional poverty and destitution.
Even as lockdowns lifted, the financial recovery remained slow and uneven. Households, on average, continued to earn 16 to
19 percent lower cumulative income in the post-lockdown period compared to pre-pandemic levels. Because of prolonged
livelihood and earnings losses, poverty rates remained 50% to 80% higher in the post-lockdown period than they were before
the pandemic struck.
IV. GENERATIONAL POVERTY
When poverty is handed over to individuals and families from generations before them. In this type, there is
usually no escape from it, as people are trapped in its causes and have no access to tools that will help them get
out of it.

EXAMPLE:
Musahar community in rural Bihar and Uttar Pradesh, India.
they are considered "Mahadalits“, a marginalized group within the Dalit fold. Due to deeply entrenched social
systems, the Musahars were historically barred from owning land. Generations have passed without any assets,
properties, or physical capital to inherit, leaving each new generation starting from financial zero. Under British
colonial rule, systemic stigmatization stripped them of traditional forest livelihoods and forced them into
institutionalized bonded labor under powerful local Zamindars. Intense social exclusion and the stigma of
untouchability have historically isolated the community. This restricted their access to public spaces, common
water bodies, and equitable employment. Over 95% of Musahars remain manual wage laborers, working
primarily in agricultural fields, stone quarries, or brick kilns. A UNICEF assessment points out that average
household incomes remain extremely low, hovering around just ₹6,260 per month. The literacy rate within the
community is profoundly low compared to the national average. UNICEF field data shows that nearly 37% of
Musahar children under 14 have never enrolled in formal school. Housing conditions remain highly precarious;
approximately 70% of households live in temporary mud huts. Surveys indicate that around 35% of families lack
standard ration cards, and over 50% of children lack birth certificates, creating a administrative barrier that
prevents them from accessing direct benefit transfers.
V. MULTIDIMENSIONAL POVERTY
Multidimensional poverty is made up of several factors that constitute poor people’s experience of deprivation, such as
poor health, lack of education, inadequate living standard, lack of income, disempowerment, poor quality of work and
threat from violence.
A multidimensional measure can incorporate a range of indicators to capture the complexity of poverty and better inform
policies to relieve it. Different indicators can be chosen appropriate to the society and situation.
 CHARACTERISTICS OF THE POOR
• Low income and consumption levels.

• Poor health and nutrition: suffer from malnutrition, illness, and limited access to healthcare services.

• Low level of education: Illiteracy or low educational attainment is common, limiting skills and employment opportunities.

• Unemployment or underemployment: Many are engaged in low-paid, informal, seasonal, or insecure jobs.

• Inadequate housing and living conditions: They may live in overcrowded houses, slums, or unsafe environments with poor sanitation and
drinking water.

• Lack of access to basic services: Limited access to clean water, sanitation, electricity, education, healthcare, and transportation.

• Vulnerability to shocks: Poor people are highly vulnerable to natural disasters, illness, job loss, and economic crises.

• Social exclusion and marginalization: They often face discrimination based on caste, gender, location, or ethnicity and are excluded from
social and political processes.

• Lack of assets and savings: They usually own few productive assets (land, tools, capital) and have little or no savings.

• Intergenerational poverty: Poverty is often passed from one generation to the next due to lack of opportunities.

• Low bargaining power and voice: Poor people have limited ability to influence decisions that affect their lives.

• Poor quality of work and job insecurity: Employment is often unsafe, irregular, and without social security benefits.
 IMPACT OF POVERTY

1. Poverty and Credit: The poor lack access to the credit market. They are unable to obtain loans that can
be used to better their lives by allowing them to invest in a productive activity. The poor lack the
wherewithal to put up adequate collateral and therefore are denied the loan. Sometimes the poor may
approach the informal credit sources to meet their loan requirements (high ROI and exploitation by
moneylenders). Thus, the inability on the part of the poor to provide appropriate collateral shuts them out
from the formal credit market.

2. Poverty and Insurance: Future is always uncertain and it holds risks that we are unwilling to take. One
may fall sick or become disabled or meet with accident. Natural calamities like floods and earthquakes entail
human miseries irrespective of the rich and the poor. The worst affected, however, are the poor who fail to
fend for themselves against such contingencies.
The payment of insurance premium is another problem which is faced by the poor. Their earning capacity
being small and income being low, they find it difficult to pay the amount of insurance premium out of
their limited income.
The poor are generally illiterate and uneducated and are not acquainted with insurance schemes. They,
therefore, remain deprived of the benefits of such schemes. The poor, therefore, remain at a disadvantage
and feel handicapped to use benefits of insurance in their favour. The poverty of the people affects the
business of insurance companies in the developing countries.
3. Poverty and Nutrition: Undernutrition results in the general weakness of human body and causes
increased illness, vulnerability to infection, retardation of physical and mental growth and the diminution of
work capacity. Undernourished persons are easily fatigued and exhibit marked psychological changes,
manifested in mental apathy, depression, introversion, lower intellectual capacity and lack of motivation. Life
expectancy of undernourished people is low.
There is a relationship between a person's nutritional status and his capacity to work.
On X-axis, income (nutrition) is shown and on Y-axis, work
capacity is shown. The capacity curve OA is drawn by linking
different nutrition (income) points to the corresponding levels of
work capacity that are generated by the individual.

As we move from left to right on X-axis, we increase the amount

of income/nutrition. Initially most of the nutrition goes into
maintaining the basic frame of the body, so very little energy is
left for work. Hence work capacity is low and does not increase
too quickly. Once the body frame is strengthened, there is a
marked increase in work capacity. However, this phase is
followed by the phase of diminishing returns as the natural limits
imposed by the body’s frame restrict the conversion of increasing
nutrition to ever-increasing work capacity.

Just as low levels of income are responsible for low levels of

nutrition, low levels of nutrition work through the capacity curve
to diminish earnings. The existence of such a trap is far more
likely in countries that have low per capita income.
4. Poverty and the Household: Relationship between poverty and resource allocation within the household.
One of the great tragedies of poverty is that the poor cannot afford to share their poverty equally. In situations
of extreme poverty, equal division of resources may not benefit anyone because the average amounts are too
small. The main benefit of unequal distribution is that it helps some individuals in the household to be
minimally productive under extreme circumstances. This phenomenon leads to the well-known problem of the
"lifeboat ethic“ : a life boat can hold only 2 people and there are 3 individuals to save. One person may die.

5. Poor Health and Malnutrition

Poverty leads to lack of nutritious food, clean water, and proper healthcare. Poor people cannot afford nutritious
food, leads to undernourishment, stunting, weakness and low immunity, malnutrition, frequent illnesses, and
low life expectancy. Children from poor families are more likely to be underweight and weak.

6. Lack of Education
Poor families cannot afford school fees, books, uniforms, or transport. Many children are forced to drop out of
school and start working at a young age. This keeps them trapped in poverty for generations. This results in high
illiteracy in the country.
7. Unemployment and Underemployment
Poverty is closely linked with unemployment and low-paid jobs. People lack skills and opportunities, so they are
forced to work in insecure and poorly paid jobs. They are likely to earn lower wages when they are employed. The
poor are more likely to be unemployed or underemployed.

8. Low Standard of Living: People live in Slums, Kutcha houses, Overcrowded and unhygienic conditions, where
there is lack of Electricity, Clean drinking water, Toilets, etc.

9. Child Labour
Due to poverty, children are forced to work to support their families instead of going to school. This harms their
physical and mental development.

10. Crime and Social Problems

Poverty increases frustration and inequality in society. This can lead to crimes such as theft, begging, trafficking,
and other social evils.

11. Low Productivity of the Economy

Poor health, lack of education, and low skills reduce workers’ efficiency. This lowers overall production and slows
down economic growth.

12. Psychological Impact: Poverty leads to Stress, anxiety, depression, Loss of self-respect and dignity, Feeling of
social exclusion and hopelessness.
13. Slow Economic Growth: When a large part of population is poor:
• Demand for goods and services is low.
• Savings and investment remain low.
This slows down overall development of the country.

14. Burden on Government: Government must spend huge amounts on Subsidies, Free ration, housing, health
schemes, and Employment programs.
This reduces funds available for infrastructure and growth projects.

15. Political Instability

Poverty can lead to Protests, Social movements, Political unrest.
People lose trust in institutions and governance.

16. Long-Term Dangerous Cycle (Vicious Circle of Poverty)

Poverty → Poor health & education → Low productivity → Low income → More poverty
This cycle continues unless strong government and social intervention happens.
 MEASUREMENT OF POVERTY
Poverty is measured by defining a threshold level of expenditure (or income) required to purchase goods and
services necessary to satisfy basic needs at the minimal socially acceptable level.

Poverty Line
This threshold level of expenditure or income is called the poverty line and the proportion of the population living
below it is called Below Poverty Line. The poverty line sets a level below which persons live in absolute human
misery.
The poverty line has 3 potential uses:
• Identification of poor.
• The allocation of expenditures on anti-poverty programs across regions; and
• Measuring and tracking poverty over time and across regions etc.

I. HEAD COUNT METHOD

Absolute poverty may be measured by the number or “head count” H, of those whose incomes fall below the
absolute poverty line Yₚ. The head count refers to the fraction of total population denoted by N, and head count
index is interpreted as H/N.
II. POVERTY GAP METHOD
The absolute poverty interpreted in terms of number of people below an agreed poverty line can have its
limitations.
Suppose the poverty line has been set at 350 US dollars per person, it makes a big difference whether most of
the absolute poor earn $340 or $300 per year. Both are accorded the same weight when calculating the
proportion of the population that lies below the poverty line. Clearly, the poverty problem is more serious in the
latter case.
Development writers, therefore, have attempted to calculate poverty gap, instead of poverty line. Poverty gap
measures the total amount of income necessary to raise the people who are below the poverty line to poverty
line.
 The comparison of the two diagrams indicates
that even though in both country A and country
B, 50% of the population is below the same
poverty line, but the poverty gap in country A is
greater than in country B. Therefore, more
efforts are needed to eliminate the absolute
poverty in country A.

X-axis: Percentage of population, Y-axis: Annual income, Yₚ: Poverty line

The curve or line starting from origin and rising upward indicates annual income profile of the population. The diagram has
been split into two parts (a) and (b) representing countries A and B respectively. The shaded area measures the poverty gap
reflecting that 50 per cent of population is living below the poverty line.
Country A – Curved Income Line
• The curve begins very close to the X-axis, indicating that the poorest people earn extremely low incomes, much below the
poverty line.
• For the first 50% of the population, the (convex) curve rises slowly, meaning incomes increase only slightly among the poor.
• Near the poverty line, the curve starts rising rapidly, indicating that incomes increase sharply for the richer half of the
population.
• Country A shows greater inequality among the poor because many people are far below the poverty line.
Country B – Straight Line Income
• The income line is a straight upward-sloping line, meaning income increases at a constant rate from the poorest to the
richest.
• The poorest individuals still earn less than the poverty line, but their incomes are closer to the poverty line than those in
Country A.
Total Poverty Gap (TPG)
Total poverty gap (TPG) measures the total amount of income necessary to raise everyone who is below the
poverty line up to poverty line.
The TPG is the extent to which the incomes of the poor lie below the poverty line and is found by adding up the
amounts by which each poor person’s income (Yᵢ) falls below the absolute poverty line Yₚ, as follows:

where H refers to the head count discussed earlier.

TPG refers to the amount of money it would take to bring every poor person in an economy up to our defined
minimum income standards.

Average Poverty Gap (APG)

On a per capita basis, the average poverty gap (APG) is found by dividing the TPG by the total population (N):
APG = TPG / N
On average, how much each person in the country would have to contribute to remove poverty.

Normalised Poverty Gap (NPG)

Is a statistical measure to understand the size of the poverty gap in relation to the poverty line.
NPG = APG / Yₚ
This measure lies between 0 and 1 and it can be useful when we want a unitless measure of the gap for easier
comparisons.
Example:
If NPG = 0.2, it means the poverty gap is 20% of the poverty line income.
If NPG = 0.0027, it means the poverty gap is only 0.27% of the poverty line income.

Average Income Shortfall (AIS)

Another important poverty gap measure is the average income shortfall (AIS), which is the total poverty gap
divided by the head count of the poor:
AIS = TPG / H
The AIS tells us the average amount by which the income of a poor person falls below the poverty line.
In a town, the poverty line income is fixed at ₹2,000 per month. The monthly incomes (in ₹) of 15 households are given below:
Household Income (Rs.)
H1 500
H2 1200
H3 1800
H4 2200
H5 2500
H6 900
H7 1600
H8 1400
H9 3000 Identify:
H10 1000
H11 1900 i. Number of poor households
H12 2100
H13 1700 ii. Head Count Ratio
H14 800
H15 2600

Calculate and interpret the following: If the government keeps a budget of Rs 5000 for poverty
i. Total Poverty Gap (TPG) eradication in the town.

ii. Average Poverty Gap (APG) i. Is it sufficient to eliminate poverty completely in this town?

iii. Normalised Poverty Gap (NPG) ii. If not, how much additional money is required?

iv. Average Income Shortfall (AIS)

 • H1: 2000 − 500 = 1500
• H2: 2000 − 1200 = 800
• H3: 2000 − 1800 = 200
• H6: 2000 − 900 = 1100
• H7: 2000 − 1600 = 400
• H8: 2000 − 1400 = 600
• H10: 2000 − 1000 = 1000
• H11: 2000 − 1900 = 100
• H13: 2000 − 1700 = 300
• H14: 2000 − 800 = 1200
TPG = 1500 + 800 + 200 + 1100 + 400 + 600 + 1000 + 100 + 300 + 1200 = ₹𝟕, 𝟐𝟎𝟎

The town needs a minimum aggregate income transfer of ₹7,200 per month to raise every poor household exactly to the
poverty line.

Average Poverty Gap (APG)

The total poverty gap averaged across the entire population:
TPG 7200
APG = = = ₹𝟒𝟖𝟎
𝑁 15

Interpretation: Distributed across all 15 households in the town, an average transfer of ₹480 per household per month is
required to eradicate poverty completely.
Normalised Poverty Gap (NPG)
This measures the APG as a fraction of the poverty line:
APG 480
NPG = = = 𝟎. 𝟐𝟒 or 𝟐𝟒%
𝑌𝑝 2000

Interpretation: Across the total population, poverty gap is 24% of the poverty line income.

Average Income Shortfall (AIS)

The total poverty gap averaged across only the poor households:
TPG 7200
AIS = = = ₹𝟕𝟐𝟎
𝐻 10

Interpretation: On average, each poor household falls short of the poverty line by ₹720 per month.
III. FOOD ENERGY METHOD
The food energy intake (FEI) methodology defines the minimum food intake needed by a given individual to
lead a decent life. By this definition, those people who cannot afford the cost of the FEI are poor.

FEI is an absolute concept of poverty that is entirely food-based. This measure, therefore, is a good indicator of
poverty in those countries where a large part of the population spends a significant fraction of their budget
on food. This is typical of less developed economies. Whereas, in more developed economies, a large part of
the population spends a smaller fraction of their total income or total expenditures on food.
The food energy intake calculations are based on nutritional information. Usually, the energy intake is defined in
terms of calories, i.e. as the minimum caloric intake needed to live. Additional criteria, like the proteinic content
and the micro-nutrients content, supplement the caloric intake. Generally, this information comes from
nutritionists’ expert studies.

There are 2 main methods of pricing a given food energy intake:

1. The least-cost method:

Step 1: requires that FEI be calculated. This needs external sources/information. In 1979, the Planning
Commission revised the calorie norms to 2,400 in rural areas and 2,100 in urban areas, due to the lower rate of
physical activity in urban areas.

Step 2: Once FEI has been set, we should build one or more baskets of goods giving the same food energy intake
to individuals. Other nutritional features may help in this process, such as the proteinic content or the micro-
nutrients content. In different baskets, there may be more rice and less cereals or less eggs and more tomatoes or
more apples and less milk, and so on. This procedure implies some degree of arbitrariness. Nutritionists may be
better equipped to provide this information, i.e. what the basket should contain.

Step 3: All baskets must then be priced. This is done by attaching a market price to every good in the basket.
Nutritional information must be converted into monetary values.

Step 4: It will then be straightforward to calculate total expenditures for each basket by multiplying each price by
the corresponding quantity of each item included in the basket. As every basket may have different combinations
of goods, pricing these baskets may give rise to a different total cost for the same energy intake.

Step 5: The cost of the basket with the minimum cost is taken to be the poverty line, with the same FEI.
Example: FEI Method by FAO, UN - Numbers are adapted from a real case
for India, as described in Subramanian and Deaton, 1996.

Step 1 – In order to calculate an adequate food energy intake, the authors

start from observed consumption patterns in the household survey for
the state of Maharashtra, in India. For the average consumption of total
population, the daily caloric intake is 2,120 calories.

Step 2 – Now, suppose we build another basket of food (basket B),

where the same caloric intake is given by a different combination of food.

Step 3 – The authors provide average prices for 1,000 calories for each
item in the basket. They are included in column C of Table 1 and
expressed in rupees.

Step 4 – The total cost of achieving FEI is given in column D and obtained
as the sum of the products of calories and corresponding prices for each
item. Following this procedure, basket A would cost 3.15 rupees per day;
basket B would cost 3.47 rupees per day.

Step 5 – Given that the same caloric intake can be obtained from two
different baskets, the poverty line is taken to be the minimum cost to
achieve that intake. The poverty line, in this case, would be 3.15 rupees
per day.
2. The expenditure-based method: The expenditure-based method, instead, requires that the
minimum caloric intake obtained by household groups be
compared to their average consumption.
2 cases may arise:

First, if total calories obtained from average consumption

are lower than the minimum food energy intake, average
consumption must be re-evaluated by the ratio between
the minimum caloric intake (FEI) and the actual caloric
intake. Re-evaluated average consumption must then be
priced and the resulting cost is taken to be the poverty line.

Second, if total calories obtained from average

consumption are higher than the minimum caloric intake,
the cost of the minimum caloric intake (FEI) is taken to be
the poverty line. Note that in this case, the cost of the
minimum caloric intake (FEI) is calculated by switching to
the least-cost method.

Therefore, the expenditure-based method usually applies

only in the case where calories in average consumption fall
short of the calories required by the food energy intake (FEI).
The table assumes that the minimum caloric
intake is 2,822 calories per day and that the
caloric intake derived from average observed
consumption is equal to 2,120 calories.

In this case, daily consumption of each item is

reevaluated by the ratio (2,822/2,120) = 1.331.
With this correction, the average consumption is
proportionally scaled up in order to achieve the
minimum caloric intake of 2822 calories.

Food expenditure per day, given the same

prices as before, is therefore recalculated in
column F.

It gives a total amount of 4.19 rupees per day,

which is taken to be the poverty line according
to FEI (expenditure-based method).
IV. THE PURCHASING POWER PARITY (PPP) METHOD

To measure global poverty, the World Bank uses Purchasing Power Parities (PPPs) as the conversion factor that
account for relative price differences across countries.
International poverty line (IPL), set by the World Bank, is a monetary threshold used to determine an “adequate”
level of income. If a person falls under that threshold, they’re considered to be living in poverty. The IPL is a global
absolute minimum and it takes into consideration national poverty lines. National Poverty Line varies due to the
differences among countries, with respect to, prices, income levels, purchasing power. This makes it difficult to
measure global poverty based on national poverty lines.

In 1990, the World Bank calculated a common denominator using purchasing power parity (PPP) exchange rates.
These are the rates that measure the price of specific goods in different countries, as well as the literal
“purchasing power” (e.g., how much you can buy) of each currency. They then converted these PPP rates to a
common currency: the US dollar.

The first IPL was set at $1 USD per day, which was the general threshold for being able to meet one’s most basic
needs. The international poverty line has risen gradually over the last 35 years. It shifted to $2.15 in 2022. In June
2025, the World Bank has announced a major revision to global poverty estimates, raising the International
Poverty Line (IPL) from $2.15/day (2017 PPP) to $3.00/day (2021 PPP).
• The median of the national poverty lines of low-income countries is known as the International Poverty
Line, and it defines the threshold for extreme poverty for the world. In June 2025, it was set at $3.00 per day
per person in 2021 PPP terms.

• The median of the national poverty lines of lower-middle-income countries is the LMIC poverty line, set
at $4.20 per day per person in 2021 PPP terms. India is a lower- middle-income country according to the
World Bank's classification.

• There is the upper-middle-income (UMIC) poverty line at $8.30 per day per person in 2021 PPP terms.

Using these poverty lines, the World Bank finds that 5.3% of India's population falls below the extreme poverty
line threshold of $3 per day (PPP). In other words, one in twenty Indians live in extreme poverty. In India's
national currency, the $3 (PPP) per day threshold corresponds to ₹60 per person per day.
Example:
Suppose 10 units of commodity X, 12 units of commodity Y and 15 units of commodity Z can be
bought in India by spending Rs. 2100 and the same quantities of X, Y and Z can be bought in the
United States by spending 30 dollars.
This means:
$30 = Rs. 2100
$1 = Rs. 70
So, the exchange rate between rupee and dollar is $1 = Rs. 70.
Calculation of the International Poverty Line (IPL) using Purchasing Power Parity (PPP)

1. Data Collection: National Poverty Lines:

The process begins by identifying national poverty lines from the world’s poorest countries.
• National Standard: Each country determines its own "minimum" cost for basic food, clothing, and shelter in
its local currency – National Poverty Line in country’s local currency.
• Reference Group: The World Bank selects a "reference group" of countries, representing the lowest-
income economies.

2. Conversion: Local Currency to International Dollars:

To compare these diverse local/national poverty lines, each local poverty line is converted into a common
"international dollar" using the PPP exchange rate.

3. Aggregation: Setting the Global Benchmark:

Once all national lines from the reference group are in a common currency (US $), the World Bank calculates a
central value to represent the global standard.
• The IPL is derived as the median value of these converted national poverty lines.
EXAMPLE: CALCULATION OF INTERNATIONAL POVERTY LINE
According to Rangarajan Committee - 2014, daily per capita expenditure was determined at Rs 47 for urban areas
and Rs 32 for rural areas at 2011-12 prices.
India’s National Poverty Line = Rs 47
Conversion exchange rate calculated based on Purchasing Power Parity Theory, is Rs 20.6.
1 $ = Rs 20.6
India’s Poverty Line in $ = India’s National Poverty Line (NPL) / PPP conversion exchange rate in India
India’s Poverty Line in $ = Rs 47 / 20.6 = $2.28

Sri Lanka’s Poverty Line in $ = Sri Lanka’s National Poverty Line (NPL) / PPP conversion exchange rate in Sri Lanka

Bangladesh’s Poverty Line in $ = Bangladesh’s National Poverty Line (NPL) / PPP conversion exchange rate in
Bangladesh
.
.
.
.
.
The World Bank performs these calculations for a reference group of the world's poorest countries (typically the
28 poorest countries). The median of these Poverty Line values in dollars is chosen as the International Poverty
Line.
 V. HUMAN POVERTY INDEX
The Human Poverty Index (HPI) was a composite statistical measure introduced by the United Nations
Development Programme (UNDP) in its 1997 Human Development Report to quantify poverty not merely through
income shortfalls but via direct deprivations in core dimensions of human well-being.

HPI-1 (for developing countries)

The UNDP has argued that human poverty should be measured in terms of three key variables:
➢ The percentage of the population not expected to survive to the age of 40 (P1).
➢ The adult illiteracy rate (P2): Percentage of the adult population aged 15 and older who cannot read and write
➢ A deprivation index (P3) based on an average of two variables:
• The percentage of the population without access to safe water (P31)
• The percentage of underweight children under five years old (P32)

Formula for Human Poverty Index:

𝟏/𝟑
𝑷𝟏𝟑 + 𝑷𝟐𝟑 + 𝑷𝟑𝟑
𝑯𝑷𝑰 =
𝟑

where:
UNDP Human Development Report (2000) calculates HPI for India as under:
• P1 = 16.7; P2 = 43.5; P31 = 12; P32 = 53

12 + 53
𝑃3 = = 32.5
2

Substituting these values:

1/3
ቆ16.7)3 + ൬43.5)3 + ቀ32.5)3
𝐻𝑃𝐼 =
3
1/3
4657.463 + 82312.875 + 34328.125
=
3

1/3
121298.463
=
3

= ቀ40432.821)1/3

= 34.32

India, being in the category of medium human development, has an HPI of about 34.4%, suffering severe deprivation across
basic health, education, and living standards. It means that about one-third of the Indian population lives in poverty.
HPI-2 (for developed – OECD countries)
➢ The percentage of the population not expected to survive to the age of 60 (P1).
➢ The percentage of adults aged 16-65 lacking functional literacy skills (P2), which evaluates practical
reading and numeracy abilities essential for employment and civic engagement.
➢ Decent standard of living - Percentage of people living below 50% of median income household
disposable income (P3).
➢ Social Exclusion - The long-term unemployment rate, defined as the percentage of the total labour force
that has been unemployed for 12 months or longer (P4)

Formula for Human Poverty Index:

HPI–2 =
• 𝑃1 : 8.0% of the population is not expected to survive to age 60.
• 𝑃2 : 15.0% of adults aged 16–65 lack functional literacy skills.
• 𝑃3 : 12.0%(Population living below 50%of median income)
• 𝑃4 : 2.5%(Long-term unemployment as a percentage of the total labor force)

11.21% of the population experiences human poverty.

 VI. MULTIDIMENSIONAL POVERTY MEASURE
How we measure poverty can importantly influence how we come to understand it, how we analyze it, and how
we create policies to tackle it.
Conceptually, poverty has traditionally been understood as a lack of money with statistics on consumption or
expenditure acting as a proxy for a household's quality of life. Most countries of the world define poverty in a
unidimensional way, using income or consumption levels.
In recent decades, a consensus has gradually built that focusing on monetary poverty alone, or on any single
indicator for that matter, is not enough to capture the lived reality of poverty. No one indicator, such as income
or consumption, is uniquely able to capture the multiple disadvantages that contribute to poverty. These often
include a lack of education, health, housing, empowerment, humiliation, employment, personal security and
more.

Multidimensional poverty measures can be used to create a more comprehensive picture. It reveals who is poor
and how they are poor, based on the range of different disadvantages they experience.
Multidimensional poverty conceives of poverty as an experience of overlapping deprivations. A person who is
poor can suffer from multiple disadvantages at the same time, for example they may have poor health or be
malnourished, they may also lack clean water or electricity, they may have had little schooling, or be unemployed.

Furthermore, levels and trends of income/monetary poverty may not be highly correlated with trends in other
basic variables such as child mortality, primary school completion rates, or undernourishment. A person or
household can be income poor but not multidimensionally poor, or income rich yet in multidimensional poverty.
WHY MEASURE MULTIDIMENSIONAL POVERTY? WHY USE A MULTIDIMENSIONAL APPROACH?

1. To enhance our understanding of poverty to inform action: "The heart of public action lies in a clear-headed
understanding of what the problems are" – Professor Amartya Sen. Multidimensional poverty measures
complement monetary measures to create a more comprehensive picture of poverty. Multidimensional
Poverty Index (MPI) reveal both who is poor and how they are poor, illuminating the set of different
disadvantages they experience at the same time.

2. MPIs reveal the level of poverty and indicator composition among different sub-groups of people or in
different areas of a country. MPIs can help prioritize the poorest communities, guiding more impactful
multisectoral interventions.

3. MPI does not simply report the percentage of people who could be considered poor. An MPI also shows the
intensity of poverty.

4. Traditional poverty measures cannot shed light on which people experience two or more of those deprivations
at the same time. In contrast, an MPI shows where the greatest deprivations cluster and persist in a
community.
5. To reveal poverty which would otherwise be hidden and address it:
Studies since the early 1980s have shown that people who are poor according to income or consumption
poverty measures are not necessarily the same people as those who are multidimensionally poor. A lack of
services relating to electricity, schools, healthcare, or waste disposal for example, can impede the lives of
people even if their monetary resources are slightly above the poverty line.

6. Internationally recognized approach: The internationally recognized conceptual definition of poverty has
broadened to include a multidimensional perspective. Goal 1 of the UN’s Sustainable Development Goals
(SDGs) aims to end poverty in all its forms and dimensions. The SDGs also recognize multidimensional
poverty explicitly in the second of the 169 SDG Targets - namely, Target 1.2 which is by 2030: "to reduce at
least by half the proportion of men, women and children of all ages living in poverty in all its dimensions
according to national definitions.“

7. Multidimensional measures reveal more: Poverty measures that only consider income underestimate global
poverty. Money cannot be used as the sole indicator to determine whether someone is or isn’t experiencing
poverty. Together monetary and non-monetary measurement provide a comprehensive picture, and are
needed to better inform the policies, programs, and services designed to reduce and ultimately eradicate
poverty. People who experience poverty describe the multidimensional nature of their circumstances. They
name a much wider range of factors beyond money that impact their circumstances.

8. Multidimensional poverty measurement reveals important policy-relevant insights that are required to
inform policy and decision-making.
WHAT IS A MULTIDIMENSIONAL POVERTY INDEX?
The Global Multidimensional Poverty Index (global MPI) is a poverty measure that reflects the multiple
deprivations that poor people face in the areas of education, health, and living standards. The Global MPI reflects
both the incidence of multidimensional poverty (the proportion/percentage of people in a population who are
multidimensionally poor) and its intensity (the average number of deprivations that each poor person
experiences).
It can be used to create a comprehensive picture of people living in poverty and allows for comparisons between
countries, regions and the world, as well as within countries by ethnic group, urban/rural location, and other
characteristics of households and communities.
GLOBAL MULTIDIMENSIONAL POVERTY INDEX (MPI) 2025 - OVERLAPPING HARDSHIPS:
POVERTY AND CLIMATE HAZARDS

Released by: Oxford Poverty & Human Development Initiative (OPHI) and the Human Development Report
Office of the United Nations Development Programme (UNDP)

About: It measures acute multidimensional poverty and tracks progress on the first Sustainable Development
Goal (SDG) ending poverty, along with related goals on hunger, health, education, clean water and sanitation,
energy, and housing.
This edition combines climate hazard and poverty data for the first time to show how much poor people are
affected by climate risks.

Launch: In 2010

Coverage: 109 countries (including new data from 13 countries)

STRUCTURE OF THE GLOBAL MULTIDIMENSIONAL POVERTY INDEX:

The global MPI is calculated by creating a deprivation profile for each household and person, covering 10
indicators, under 3 dimensions.
All indicators are equally weighted within each dimension.
Health, Education, and Standard of Living each receive 1/3 of the total weight.

MPI INDICATORS:
The final MPI value for a country or
region is a product of two critical
components (MPI = H × A):
H - Incidence of Poverty: The
proportion of the population who are
multidimensionally poor (the
headcount ratio).

A - Intensity of Poverty: The average

proportion of weighted deprivations
poor people experience. It answers
"how poor are the poor?" on average.

A person is multidimensionally poor if

their deprivation score, calculated as
the sum of weighted deprivations, is
1/3 (33.3%) or higher.

MPI values range from 0 to 1, and

higher values imply higher poverty.
EXAMPLE:

Dimension Weight Indicators Weight of each indicator

Health 1/3 Nutrition, Child mortality each = 1/6
Years of schooling, School
Education 1/3 each = 1/6
attendance
Living Standard 1/3 6 indicators each = 1/18

If a person is deprived in an indicator, he gets the full weight of that indicator.

If not deprived, gets 0.

Then:
Sum of weighted deprivations = Total of weights of all indicators in which the person is deprived.
Suppose Person A has the following deprivations:

Indicator Deprived? Weight

Nutrition Yes 1/6
Child mortality No 0
Years of schooling Yes 1/6
School attendance No 0
Cooking fuel Yes 1/18
Sanitation Yes 1/18
Drinking water No 0
Electricity No 0
Housing No 0
Assets No 0

In Global MPI:
If sum ≥ 1/3 (0.333), person is multidimensionally poor
Here:
0.444 > 0.333

Person A is multidimensionally poor

KEY FINDINGS OF GLOBAL MULTIDIMENSIONAL POVERTY INDEX REPORT 2025:
Global Poverty Overview:
• Of 6.3 billion people in 109 countries, 1.1 billion (18.3%) live in acute multidimensional poverty.
Over 1 billion poor people, making up about 90.5% of the total poor, live in countries with low or medium
Human Development Index (HDI) values.
About 83.2% of poor people live in two regions - sub-Saharan Africa (565 million) and South Asia (390 million).

• Nearly two-thirds of all poor people, about 740 million (64.5%), live in middle-income countries.

• Nearly half of all multidimensionally poor people, about 518 million, live in just 6 middle-income countries:
Bangladesh, China, India, Nigeria, Pakistan, and the United Republic of Tanzania.

• Rural areas, which make up only 54.9% of the total population, are home to 83.5% of all multidimensionally
poor people (958 million), highlighting a stark disparity.

Child Poverty:
• About 27.8% of children live in multidimensional poverty - more than twice the adult rate of 13.5%.

These 586 million children account for more than half (51%) of the 1.1 billion people living in multidimensional
poverty.
Poverty Reduction Progress: Global and India Trends:

• Of the 88 countries, 76 have seen a reduction in MPI values, showing a decline in poverty.
The fastest reductions were seen in Benin, followed by Cambodia and the United Republic of Tanzania.

• In India, the poverty rate fell from 55.1% in 2005–2006 to 16.4% in 2019–2021, lifting about 414 million
people out of poverty.

Climate hazards:

• Of the 1.1 billion poor people, about 887 million live in areas (nearly 80%) facing at least 1 of 4 climate
hazards - high heat, drought, floods, or air pollution.
The most widespread hazards affecting poor people globally are high heat and air pollution.

• Across regions, exposure to climate hazards varies widely: South Asia (380 million) and sub-Saharan Africa
(344 million) have the largest numbers of poor people living in affected areas.

• About 72.2% of poor people exposed to climate hazards live in middle-income countries, mainly in lower-
middle-income countries.