Poverty, Inequality & Unemployment
Poverty, inequality and unemployment are the three faces of the same problem of inadequate and unequal development. Poverty describes a section of the population that cannot meet a basic standard of living, inequality describes how unevenly income and wealth are distributed, and unemployment describes the inability of those who are willing to work to find jobs. Together they shape the welfare policies of the government and are measured through carefully defined statistical methods. This topic is important for examinations because it combines concepts, committees, measurement methods and schemes. These notes explain the poverty line, inequality measures, the main sources of employment data, the types of unemployment and the programmes meant to address them.
Poverty line and the committees
The poverty line is the minimum level of consumption or income needed to satisfy basic needs, and in India it has historically been defined in terms of calorie intake. The Y. K. Alagh Committee of 1979 defined the poverty line on the basis of a daily intake of two thousand four hundred calories in rural areas and two thousand one hundred calories in urban areas. A major revision came with the Tendulkar Committee, which recommended a new methodology in 2009 and shifted the basis from calorie norms to a basket that included food, education, health and other essentials. The Tendulkar Committee fixed the rural poverty line at about thirty-three rupees per day and the urban poverty line at about forty-seven rupees per day at 2011-12 prices, and it estimated the poverty ratio at about twenty-one point nine per cent in 2011-12. The Rangarajan Committee was constituted in 2012 to review the Tendulkar methodology. The proportion of the population living below the poverty line is called the poverty ratio or the headcount ratio, and families identified as poor are described as below poverty line, or BPL, households.
Inequality and the Gini coefficient
Inequality refers to the uneven distribution of income and wealth among the people of a country. The most commonly used measure of inequality is the Gini coefficient, which is derived from the Lorenz curve and ranges from zero to one. A value of zero represents perfect equality, where everyone has the same income, and a value of one represents perfect inequality, where one person has everything. A rise in the Gini coefficient therefore indicates that income inequality is increasing, while a fall indicates that the distribution is becoming more equal. Inequality matters because a very unequal society can grow in aggregate terms while large sections of the population remain poor, and it can also slow down the reduction of poverty.
Sources of employment data
The primary source of unemployment statistics in India is the Periodic Labour Force Survey, which is conducted by the National Sample Survey Office under the Ministry of Statistics and Programme Implementation. The survey provides estimates of the labour force, employment and unemployment based on different reference periods. In the usual status approach, a person's activity is judged over the past year, while in the current weekly status approach it is judged with reference to the week before the survey. The unemployment rate is the percentage of the labour force that is unemployed and actively seeking work; it is important to remember that it is calculated on the labour force, not on the total population.
Types of unemployment
Frictional unemployment occurs when workers are temporarily unemployed while moving between jobs. Structural unemployment arises from a mismatch between the skills that workers possess and the requirements of the jobs that are available, which is a common problem in a changing economy. Seasonal unemployment is common in Indian agriculture during the non-cropping season, when farm work is not available. Disguised unemployment exists when people appear to be employed but their marginal productivity is zero or negligible, and it is most prevalent in agriculture, where more workers are engaged on a plot than are actually needed. Cyclical unemployment, also called demand-deficit unemployment, is associated with downturns in the business cycle and increases during a recession.
Multidimensional poverty
Income-based measures of poverty are not enough, because a family may have a modest income but still lack health, education and decent living conditions. The Multidimensional Poverty Index was developed to capture these deprivations, and the global index was developed by the Oxford Poverty and Human Development Initiative and the United Nations Development Programme. The NITI Aayog released the National Multidimensional Poverty Index for 2023 based on data from the National Family Health Survey. India's national index uses twelve indicators spread across three dimensions, namely health, education and living standards. According to the index for 2023, the multidimensional poverty headcount ratio in India fell to about fourteen point nine six per cent. Scheduled Tribes and Scheduled Castes, along with rural households, experience the highest incidence of multidimensional poverty.
Schemes, employment and the gig economy
The government addresses unemployment through a mix of employment guarantee, skill development and livelihood programmes. The Mahatma Gandhi National Rural Employment Guarantee Act provides guaranteed wage employment in rural areas, while urban livelihoods are supported through schemes such as the National Urban Livelihoods Mission. The Skill India mission, launched on 15 July 2015, seeks to improve employability through training and certification. A new feature of the labour market is the gig economy, a labour market characterised by short-term, flexible and freelance jobs, often mediated through digital platforms. Cab and food delivery partners working through platforms such as Ola, Uber and Zomato are examples of gig workers, and their social security has become an important policy question.
Key facts at a glance
- The Y. K. Alagh Committee of 1979 defined the poverty line by calorie intake.
- The Alagh norms: 2,400 calories in rural areas and 2,100 calories in urban areas.
- The Tendulkar Committee recommended a new poverty line in 2009.
- Tendulkar lines: about Rs 33 per day rural and Rs 47 per day urban at 2011-12 prices.
- The Tendulkar methodology estimated the poverty ratio at about 21.9 per cent in 2011-12.
- The Rangarajan Committee was constituted in 2012.
- BPL stands for Below Poverty Line.
- Poverty ratio is also called the Head Count Ratio.
- The Gini coefficient ranges from 0 (perfect equality) to 1 (perfect inequality).
- The Periodic Labour Force Survey is the primary source of unemployment data.
- PLFS is conducted by the NSSO under the Ministry of Statistics.
- Frictional, structural, seasonal, disguised and cyclical are the main types of unemployment.
- Disguised unemployment is most common in agriculture.
- Skill India was launched on 15 July 2015.
- The global MPI was developed by OPHI and the UNDP.
- India's National MPI uses 12 indicators across 3 dimensions.
- As per the NITI Aayog MPI 2023, the headcount ratio fell to about 14.96 per cent.
- A gig economy involves short-term, flexible jobs, often through digital platforms.
Quick revision points
- Poverty is measured by a line, inequality by the Gini coefficient and unemployment by the unemployment rate.
- The calorie-based line belongs to the Alagh Committee and the revised line to the Tendulkar Committee.
- Zero Gini means equality and one means total inequality.
- PLFS and NSSO are the key names in employment statistics.
- Disguised unemployment is an agricultural phenomenon.
- MPI looks beyond income at health, education and living standards.
How to prepare this topic
- Memorise the committees, their years and their main contributions.
- Learn the calorie norms and the Tendulkar poverty line figures.
- Understand the Gini coefficient and what its movement means.
- List the types of unemployment with one example each.
- Remember the unemployment data sources and reference periods.
- Learn the dimensions and indicators of the Multidimensional Poverty Index.
Common exam traps
- Confusing the Alagh and Tendulkar committees and their years.
- Mixing up the rural and urban calorie norms.
- Saying the Gini coefficient ranges from minus one to one; it ranges from zero to one.
- Calling disguised unemployment an urban phenomenon; it is mainly rural and agricultural.
- Confusing frictional and structural unemployment.
- Getting the MPI dimensions or headcount ratio wrong.
Frequently Asked Questions
How is the poverty line defined in India?
The poverty line has historically been defined in terms of calorie intake. The Y. K. Alagh Committee of 1979 used a norm of two thousand four hundred calories in rural areas and two thousand one hundred calories in urban areas. The Tendulkar Committee shifted to a wider basket including food, education and health, fixing the rural line at about thirty-three rupees per day and the urban line at about forty-seven rupees per day at 2011-12 prices.
What is the Gini coefficient and what does it measure?
The Gini coefficient is a measure of income or wealth inequality, derived from the Lorenz curve, and it ranges from zero to one. A value of zero means perfect equality, where everyone has the same income, and a value of one means perfect inequality. A rise in the coefficient indicates that inequality is increasing, and a fall indicates that the distribution is becoming more equal.
What are the main types of unemployment?
The main types are frictional unemployment, which occurs while workers move between jobs; structural unemployment, caused by a mismatch between skills and available jobs; seasonal unemployment, common in agriculture during the off season; disguised unemployment, where more people appear employed than are needed, mainly in agriculture; and cyclical unemployment, associated with downturns in the business cycle and recessions.
What is the Multidimensional Poverty Index?
The Multidimensional Poverty Index measures poverty not only by income but also by deprivations in health, education and living standards. The global index was developed by the Oxford Poverty and Human Development Initiative and the United Nations Development Programme. India's national index, released by the NITI Aayog, uses twelve indicators across three dimensions, and as per the 2023 index the headcount ratio fell to about fourteen point nine six per cent.
What is the gig economy and why is it important for employment policy?
The gig economy is a labour market characterised by short-term, flexible and freelance jobs, often mediated through digital platforms. Cab and food delivery partners working through platforms such as Ola, Uber and Zomato are examples of gig workers. It is important for policy because these workers usually lack the social security and benefits associated with regular employment, so their protection has become a major concern.