Relative poverty

Topic: Poverty and Inequality: Measurement and Policy · NCERT: Beyond NCERT

Meaning

Relative poverty means having an income below a fixed share of the median income of one's own society, for example below 60% of the median. A person is "poor" because they are far behind what is normal around them, not because they are below a fixed survival minimum.

• Formula: Relative poverty line = x% × median (equivalised) income. The EU uses 60% and the OECD uses 50%.
• Why it matters: the line moves up when the median moves up. So relative poverty really measures inequality (how far the bottom is from the middle), and growth alone cannot remove it.

Explanation

How the line is drawn

• Step 1: find the median income. This is the income of the person exactly in the middle when everyone is lined up from poorest to richest.

• The median is used, not the average, because a few very rich people push the average up. They do not move the median.

• Step 2: adjust for household size. This gives equivalised income (household income adjusted for household size). A family of five needs more than one person, but not five times more.

• Step 3: take a fixed share of the median.
• EU "at-risk-of-poverty" line = 60% of median equivalised income.

• OECD line = 50% of median income.

• Step 4: count the people below the line. Their share of the population is the relative poverty rate. It is worked out like the Headcount Ratio (people below the line ÷ total population × 100).

Worked example: why growth cannot remove it

• Before growth:
• Median income = ₹20,000 a month.
• EU-type line = 60% × 20,000 = ₹12,000.

• A household earning ₹10,000 is relatively poor.

• Everyone's income doubles:

• The median becomes ₹40,000, so the line becomes ₹24,000.

• The household now earns ₹20,000. That is still below the line.

• Result: everyone is richer in real terms, but the same people are still relatively poor.

• Under an absolute line (a fixed bundle of basic needs), the household would have escaped poverty.
• Under a relative line, it escapes only if the gap between the bottom and the middle narrows.

What makes it rise or fall

• It falls when:
• incomes at the bottom grow faster than the median, for example through minimum wages, transfers or jobs for low-skill workers;

• income is shared more equally, through taxes and welfare spending.

• It rises when:

• the middle pulls away from the bottom, for example when growth is driven by high-skill sectors and low-wage workers are left behind.

• It does not change when:

• all incomes rise or fall by the same percentage, because the line moves with the median.

Why the idea exists: poverty as social exclusion

• In a rich country, very few people lack food or shelter, so an absolute line finds almost no poor people.
• But a person far below the normal living standard may still be unable to take part in ordinary social life. They may not afford a phone, travel to work, or send children on school trips.
• This is close to Amartya Sen's capability view, in which poverty is the lack of real freedom to take part in social life.
• This is why relative lines are mostly used in rich countries. Developing countries mostly use absolute lines.

The hybrid: World Bank Societal Poverty Line

• In 2018 the World Bank introduced the Societal Poverty Line (SPL), following the Atkinson Commission. It adds a relative measure to its absolute lines [3][4].
• Formula (2017 PPP version): SPL = max [ $2.15 , $1.15 + 0.5 × median daily income or consumption ] [3].
• PPP (Purchasing Power Parity): an exchange rate that makes $1 buy the same basket of goods in every country.
• As a country's median rises, its SPL rises. This is the relative part.

• The SPL can never fall below $2.15. This is the absolute floor.

• Worked example:

• Country A has a median of $6/day: 1.15 + 0.5 × 6 = $4.15. This is above $2.15, so SPL = $4.15.

• Country B has a median of $1.50/day: 1.15 + 0.75 = $1.90. This is below $2.15, so the floor applies and SPL = $2.15.

• Why it exists: as countries get richer, they raise their own national poverty lines. The SPL copies this pattern [3].

• After moving to the 2021 PPPs, the World Bank still reports "a relative poverty line that updates with a country's income level" [1].

In India

• India has no official relative poverty line. Its official measures are absolute:
• the Tendulkar and Rangarajan poverty lines;

• the World Bank International Poverty Line (IPL), which was raised in June 2025 from $2.15/day (2017 PPP) to $3.00/day (2021 PPP) [1][2].

• Extreme poverty has fallen sharply. At $3.00/day it fell from 27.12% (2011-12) to 5.25% (2022-23) [2]. This is a fall in absolute poverty. By itself, it says nothing about relative poverty.

• Signs of relative poverty come from inequality data (PIB, 2025) [2]:
• Gini coefficient (a measure of inequality from 0 to 1, where 0 means everyone spends the same) of consumption fell between 2022-23 and 2023-24:
  • rural: 0.266 → 0.237;
  • urban: 0.314 → 0.284 [2].
• The urban–rural consumption gap fell from 84% (2011-12) to 70% (2023-24) [2].
• MPCE (Monthly Per Capita Consumption Expenditure: average spending per person per month) in 2023-24 was ₹4,122 rural and ₹6,996 urban [2].

• When the bottom and the middle move closer, relative deprivation falls. These trends point in that direction.

• The "just above the line" problem. In 2022-23 the poverty rate was 5.25% at $3.00/day but 2.35% at $2.15/day [2]. Many people sit only a little above a very low absolute line. As India grows richer, a higher line or a line tied to the median (like the SPL) would give a more honest picture.

• Relative deprivation in cities. The Hashim Committee (2012) of the Planning Commission suggested identifying the urban poor through residential, occupational and social vulnerability, not income alone. This matches the relative, social-exclusion idea of poverty.

Don't confuse with

• Absolute poverty: it uses a fixed minimum bundle (for example $3.00/day, or the Tendulkar and Rangarajan lines), so growth can end it. Relative poverty uses a moving line tied to the median, so growth alone cannot end it.
• Societal Poverty Line (SPL): this is a hybrid. It is relative above the floor (0.5 × median) but never falls below the absolute floor of $2.15 [3]. A pure relative line has no such floor.
• Inequality measures (Gini coefficient): Gini summarises inequality across the whole distribution. Relative poverty counts only people below a share of the median.
• Transient poverty: this is about time. Households move in and out of poverty after shocks ("churning"). Relative poverty is about a household's position compared with others.

Prelims Hooks

• Relative poverty line: EU = 60% of median equivalised income ("at-risk-of-poverty"); OECD = 50% of median.
• It is based on the median, not the mean (average), and on equivalised income, which is adjusted for household size.
• Trap: if every person's income doubles, relative poverty does not change. The line doubles too. So it is really a measure of inequality.
• Societal Poverty Line: World Bank, 2018, after the Atkinson Commission. SPL = max($2.15, $1.15 + 0.5 × median). It is a hybrid of absolute and relative lines [3][4].
• Relative lines are used mostly in rich countries. Absolute lines (Tendulkar, Rangarajan, World Bank $3.00/day) are used mostly in developing countries [1].
• Which of the following is an absolute line? The World Bank IPL of $3.00/day (2021 PPP) is absolute. It is the median of the national poverty lines of the low-income countries. It is not a share of any country's own median [1].

Mains Points

• Absolute success can hide relative gaps. India's extreme poverty fell to 5.25% in 2022-23 at $3.00/day [2]. But as India moves toward middle-income status, a fixed low line tells less and less.
• The rate is more than double at $3.00 compared with $2.15 (5.25% vs 2.35%), which shows how many people sit just above the line [2].

• A higher line (the $4.20 LMIC line) or a societal, median-linked line gives a truer picture of deprivation [1][3].

• Growth vs redistribution. Growth reduces absolute poverty. Relative poverty needs the bottom to catch up with the middle, which means inclusive growth, labour-intensive jobs, and spending on health, education and social protection.

• Encouraging sign: consumption Gini fell (rural 0.266 → 0.237, urban 0.314 → 0.284, 2022-23 to 2023-24), and the urban–rural MPCE gap narrowed from 84% to 70% (2011-12 to 2023-24) [2].

• Relative deprivation and social inclusion. A relative view links poverty to exclusion from normal social life, as in Sen's capability approach. This supports multidimensional measures (MPI) and vulnerability-based targeting of the urban poor (Hashim Committee, 2012), not income lines alone. It fits GS-II (welfare schemes, vulnerable sections) as well as GS-III (inclusive growth).

Related concepts

• Poverty
• Absolute poverty
• Chronic poverty
• Transient poverty

Read more

• What is poverty? Absolute, relative, chronic and transient