Poverty in India: Poverty Line, Rangarajan Committee & Poverty Measurement Explained

India has not officially updated its poverty line in recent years. Researchers have therefore attempted to estimate poverty using the methodology of the Rangarajan Committee and the latest consumption expenditure data.

How is Poverty Measured?

• Poverty is measured using a Poverty Line, which represents the minimum expenditure required to purchase a basket of essential goods and services such as food, clothing, housing, healthcare, and education.
• The poverty line is estimated using Monthly Per Capita Consumer Expenditure (MPCE); individuals whose consumption expenditure falls below the prescribed threshold are classified as poor.

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Major Poverty Estimation Committees

Rangarajan Committee Methodology

The committee linked poverty lines to average consumption expenditure.

• Rural Poverty Line = 68% of average rural MPCE
• Urban Poverty Line = 54% of average urban MPCE

Using the latest data, researchers estimate:

By contrast, the Rangarajan poverty line in 2011–12 was:

The increase reflects inflation and changing living standards.

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Why Do Poverty Estimates Differ?

• Using the updated Rangarajan Committee methodology, researchers estimate that around 27% of Indians remain below the poverty line, amounting to nearly 370 million people.
• In contrast, the Government, relying on World Bank poverty standards and incorporating the impact of welfare schemes such as food subsidies and cash transfers, estimates poverty at 2.3% in 2023–24, down from 22% in 2011–12.

Role of Purchasing Power Parity (PPP)

• The World Bank’s poverty line is based on Purchasing Power Parity (PPP), which adjusts income according to the relative cost of living across countries.
• Under PPP, the purchasing power of $3 in the United States may be equivalent to purchasing goods worth only about ₹60–₹70 in India, since many goods and services are cheaper in India.
• Consequently, international poverty estimates based on PPP are generally lower than domestic poverty estimates, which are calculated using country-specific consumption patterns and expenditure requirements.

Important Poverty Facts for UPSC Mains

• Concentration of Poverty: Just four states—Uttar Pradesh, Bihar, Madhya Pradesh and West Bengal—account for nearly 40% of India’s population but almost 48% of the country’s poor population.
• States with Very High Poverty: More than 45% of the population is estimated to be poor in states such as Jharkhand, Chhattisgarh and Odisha, indicating persistent regional disparities in development.

States with Low Poverty

• States such as Punjab, Haryana, Goa, Sikkim, Tripura, and several southern states have relatively low poverty levels due to better socio-economic indicators.

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Why Does Poverty Persist?

• Subsistence Agriculture: A large proportion of farmers practice subsistence agriculture, producing only enough for household consumption with little surplus available for sale and income generation.
• Resource Curse: Despite being rich in minerals and natural resources, states like Jharkhand, Odisha and Chhattisgarh remain poor because the benefits of resource extraction largely accrue to governments and corporations, while local communities bear the environmental and social costs.
• High Dependency Ratio: Poverty persists where a small working population supports a large dependent population, reducing household savings and investment capacity.
• Low Non-Farm Employment: Limited growth of manufacturing and service-sector jobs forces people to remain dependent on low-productivity agriculture.
• Sticky Poverty: Poverty becomes self-perpetuating due to poor education, inadequate healthcare, low productivity, and limited access to economic opportunities.

Gini Coefficient: An Important Observation

• The Gini Coefficient measures income inequality within a society.
• Gini = 0 indicates perfect equality, where everyone earns the same income.
• Gini = 1 indicates perfect inequality, where all income is concentrated in a single individual.
• Interestingly, many poor states exhibit lower income inequality, not because wealth is equally distributed, but because overall levels of wealth and income are themselves very low.

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Suggested Solutions

• Better Utilisation of District Mineral Foundation (DMF) Funds: DMF funds, generated from mining royalties, should be invested in schools, primary healthcare centres, nutrition programmes, and skill development initiatives to improve local human development outcomes.
• Promotion of Value Addition: Greater income can be generated by processing raw agricultural products:
  • Milk → Cheese/Paneer
  • Fruits → Processed products
  • Honey → Packaged honey
• Agricultural Reforms: Poverty reduction requires:
  • Improved seeds
  • Higher agricultural productivity
  • Cooperative farming
  • Diversification towards high-value crops
  • Expansion of horticulture and floriculture
• Price Stabilisation Mechanisms: Farmers should be protected through:
  • Minimum Support Price (MSP)
  • Income-support measures
  • Government market intervention during price crashes
• CSR-Based Local Development: Corporate Social Responsibility (CSR) funds can support local development through investments in education, healthcare, infrastructure, and skill training, particularly in economically backward regions.

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