Poverty: Concept and Measurement

Poverty is one of the most persistent challenges facing a developing economy, and economists distinguish between two related but distinct notions of poverty.

Absolute poverty refers to a condition in which a person or household is unable to meet a defined minimum threshold of basic needs — most commonly expressed as a minimum level of calorie intake or a corresponding minimum level of consumption expenditure required for bare subsistence. Someone below this threshold is considered poor in an absolute sense, regardless of how others around them are living. Absolute poverty is the concept most commonly used in India's official poverty estimation, where a poverty line is drawn as a level of monthly per-capita consumption expenditure below which a person is classified as poor.

Relative poverty, by contrast, is defined not by an absolute minimum but by comparison with others in the same society — it captures inequality in the distribution of income or consumption. A person might have enough income to meet basic subsistence needs and yet be considered relatively poor if their income is far below the average or median income of their society. Relative poverty is therefore closely tied to the broader question of income inequality, and it tends to persist even in wealthy countries where absolute poverty (in the calorie-deficiency sense) has been largely eliminated.

The general method used to estimate an absolute poverty line conceptually works as follows: nutrition experts first specify a minimum calorie requirement per person per day (historically, different norms were used for rural and urban areas, since rural work was assumed to be more physically demanding). This calorie norm is then converted into a corresponding basket of food and non-food items, and the market value of that basket becomes the poverty-line expenditure figure. Anyone whose actual monthly consumption expenditure falls short of this figure is classified as living below the poverty line. It is important to describe this as a method rather than to quote a specific current rupee value or a specific national poverty percentage, since the exact poverty-line figure and the proportion of the population below it have been revised multiple times by different expert committees (such as the Lakdawala Committee and the Tendulkar Committee) and change with each new large-scale survey — quoting a fixed number here would risk stating an outdated or superseded figure as if it were current fact. …