What is poverty? Absolute, relative, chronic and transient

Detail

Core idea

• What we choose to count decides how much poverty we find. It also decides whom policy reaches.
• A higher poverty line → more people are counted as poor → schemes must cover more people.

• A change in the survey method → measured consumption changes → the poverty rate changes, even when real lives have not changed.

• Example from India (2011-12): the survey method changed from URP (Uniform Reference Period: one recall period, such as the last 30 days, for every item) to MMRP (Modified Mixed Recall Period: a shorter recall period for items people buy often). Recorded consumption went up, so India's poverty rate at the $2.15 line fell from 22.9% to 16.22%. The poor did not change. Only the way of counting them did [3].

What is poverty?

• Poverty means not having the income or consumption needed for basic needs: food, clothing, shelter, health and education.
• It can be measured in three ways:
• Absolute terms: below a fixed minimum.
• Relative terms: far below what is normal in that society.
• Multidimensional terms: lacking several things at once, such as schooling, health and living standards.

Two views of poverty

• Income or consumption view
• A person is poor if their spending is below a money threshold, called the poverty line.
• It is easy to measure and easy to compare over time and across regions.

• Weakness: it misses things money cannot measure well, such as a sick child or a village with no school.

• Capability view (Amartya Sen)

• Capability means a person's real freedom to be and do things they value: to be well-fed, healthy, literate and able to take part in social life.
• Poverty is the lack of these freedoms. Money is only a means to them, not the goal.
• Two people with the same income can have different capabilities. For example, a disabled person needs more money for the same mobility.
• This view is the basis of the HDI (Human Development Index, UNDP) and the MPI (Multidimensional Poverty Index).

Measuring the number of poor: the Headcount Ratio

• Headcount Ratio (HCR) = (number of people below the poverty line ÷ total population) × 100.
• Worked example: a district has 10 lakh people and 1.5 lakh of them are below the line. HCR = 1.5 ÷ 10 × 100 = 15%.
• Limit of HCR: it does not show how far below the line the poor are. A person ₹1 below the line and a person ₹1,000 below count the same.

Absolute poverty

	Absolute poverty
Meaning	Income or consumption below a fixed minimum bundle of basic needs
Tool	A poverty line (the money cost of that minimum bundle)
Examples	India's Tendulkar and Rangarajan lines; World Bank $3.00/day
Where used	Mostly in developing countries
Can growth end it?	Yes, if the incomes of the poor rise above the fixed line

• International Poverty Line (IPL): the World Bank raised it in June 2025 from $2.15/day (2017 PPP) to $3.00/day (2021 PPP) [2][3].

• PPP (Purchasing Power Parity): an exchange rate that makes $1 buy the same basket of goods in every country. It is used so that poverty lines mean the same living standard everywhere.

• How the $3.00 line is set: it is the median of the national poverty lines of the 23 low-income countries. The median value was Burkina Faso's 2022 line ($3.04), rounded to $3.00 [2].

• Why the line rose by $0.85:
• about $0.35 came from new PPP prices;

• about $0.50 came from poor countries revising their own national poverty lines upward [2].

• Higher World Bank lines (2021 PPP) [2]:

• Lower-middle-income countries: $4.20/day (earlier $3.65)

• Upper-middle-income countries: $8.30/day (earlier $6.85)

• Global count: about 838 million people lived in extreme poverty in 2022 at $3.00/day. This is about 125 million more than the earlier estimate at $2.15/day [2].

• India's extreme poverty (World Bank PIP 2025, reported by PIB) [3]:

Year	Line	Poverty rate	People below the line
2011-12	$2.15 (2017 PPP)	16.22%	~20.59 crore
2011-12	$3.00 (2021 PPP)	27.12%	~34.45 crore
2022-23	$2.15 (2017 PPP)	2.35%	~3.36 crore
2022-23	$3.00 (2021 PPP)	5.25%	~7.52 crore

• India and the global revision: the higher line alone would have added 226 million poor people worldwide. India's revised data cut the count by 125 million, so the net global rise was only 125 million [3].

Relative poverty

	Relative poverty
Meaning	Income below a share of the median living standard in that society
Tool	A percentage of median income
Examples	EU "at-risk-of-poverty" line = 60% of median equivalised income; OECD uses 50%
Where used	Rich countries
Can growth end it?	No. The line rises with the median, so it really measures inequality

• Median income: the income of the person exactly in the middle when everyone is lined up from poorest to richest.
• Equivalised income: household income adjusted for household size, because a family of five needs more than a single person, but not five times more.
• Worked example: why growth cannot remove relative poverty
• Median income = ₹20,000 a month, so the EU-type line = 60% × 20,000 = ₹12,000.
• Suppose everyone's income doubles. The median becomes ₹40,000 and the line becomes ₹24,000.
• The same people are still below the line. Relative poverty falls only when the gap between the bottom and the middle narrows.

Societal poverty line: a mix of absolute and relative

• The World Bank introduced the Societal Poverty Line (SPL) in 2018, following the Atkinson Commission. It adds a relative measure to the absolute lines [4][5].
• Formula (2017 PPP version): SPL = max [ $2.15 , $1.15 + 0.5 × median daily income or consumption ] [4].
• As a country gets richer, its median rises and so does the SPL.
• The SPL can never fall below the absolute floor ($2.15).

• The World Bank updates the constants each time it moves to a new PPP round. After the 2021 PPPs it still reports "a relative poverty line that updates with a country's income level" [2].

• Worked example:

• Country A has a median of $6/day. 1.15 + 0.5 × 6 = $4.15, which is more than $2.15, so SPL = $4.15.

• Country B has a median of $1.50/day. 1.15 + 0.75 = $1.90, which is less than $2.15, so SPL = $2.15 (the floor applies).

• Why the SPL exists: countries raise their own national poverty lines as they get richer, and the SPL copies this pattern [4].

Chronic vs transient poverty

• Chronic poverty
• Households stay poor for a long time, sometimes across generations.
• In the Chronic Poverty Research Centre typology, these are the "always poor" and the "usually poor".

• Short-term growth or relief does little for them. They lack assets (land, livestock, skills) and human capital (health, education).

• Transient poverty

• Households move in and out of poverty. This movement is called "churning".

• The cause is usually a shock, such as illness, crop failure, job loss or a sudden rise in prices.

• Vulnerability

• Vulnerability is the risk of falling below the line in future.
• Many households just above the line are vulnerable. When the line is very low, a fall in poverty can hide a large group of households living just above it.
• Example: in India the rate at $3.00/day (5.25%) is more than double the rate at $2.15/day (2.35%) in 2022-23 [3]. Many people sit between the two lines.

Policy follows the type of poverty

• Chronic poverty → long-term building
• Asset building: land, livestock, skills.
• Human capital: health and schooling.

• Long-term social protection: old-age and disability pensions.

• Transient poverty → protection against shocks

• Insurance: crop insurance and health insurance.
• Employment guarantees, which give work when other jobs disappear.

• Safety nets that switch on during shocks, such as extra food rations in a drought.

• Logic: if chronic poverty is treated with a short relief package, the household is still poor next year. If transient poverty is treated only with asset building, the household is not protected from the next shock.

Where the poor live

• Rural concentration (NCERT framing)
• Class 11, Rural Development: "the majority of the poor live in rural areas where they do not have access to the basic necessities of life".
• It also says "one-fourth of rural India still lives in abject poverty". This framing is dated.

• Newer data: extreme poverty ($3.00/day) was about 5.25% for all of India in 2022-23 [3]. (NCERT: "one-fourth of rural India".)

• The rural–urban gap is narrowing [3]:

• MPCE (Monthly Per Capita Consumption Expenditure: average spending per person per month) in 2023-24: ₹4,122 rural and ₹6,996 urban. With the value of free items from welfare schemes added, it is ₹4,247 rural and ₹7,078 urban.
• The 2011-12 figures were ₹1,430 rural and ₹2,630 urban.
• The urban–rural consumption gap fell from 84% (2011-12) to 70% (2023-24).

• Gini coefficient (a measure of inequality from 0 to 1, where 0 means everyone spends the same) fell between 2022-23 and 2023-24: rural 0.266 → 0.237; urban 0.314 → 0.284.

• Urban poverty

• It shows up in slums, insecure informal work and poor access to housing, water and sanitation.
• The Hashim Committee (2012), set up by the Planning Commission, suggested identifying the urban poor through three kinds of vulnerability, not income alone:
  • Residential: type of housing and access to basic services.
  • Occupational: insecure or informal work.
  • Social: for example, households headed by women, the elderly or disabled people.

Prelims Hooks

• World Bank IPL (June 2025): $3.00/day at 2021 PPP, up from $2.15/day at 2017 PPP. The LMIC line is $4.20 and the UMIC line is $8.30 [2].
• The IPL is the median of the national poverty lines of low-income countries, not an average of all countries [2].
• India's extreme poverty at $3.00/day: 27.12% (2011-12) → 5.25% (2022-23) [3].
• MMRP replaced URP in India's consumption surveys. Measured consumption rose and measured poverty fell [3].
• Relative poverty lines: EU = 60% of median equivalised income; OECD = 50% of median.
• Trap: relative poverty cannot be removed by growth alone, because the line moves with the median. It is really a measure of inequality.
• Societal Poverty Line (World Bank, 2018, Atkinson Commission): max($2.15, $1.15 + 0.5 × median). It is a hybrid of absolute and relative lines [4][5].
• The capability approach is linked to Amartya Sen. It underlies the HDI and the MPI.
• Hashim Committee (2012), Planning Commission: identify the urban poor by residential, occupational and social vulnerability.
• "Churning" means households moving in and out of poverty. It is the mark of transient poverty, not chronic poverty.

Mains Points

• Measurement drives policy. India's 2011-12 poverty rate fell from 22.9% to 16.22% only because the survey method moved from URP to MMRP [3]. The choice of line and method decides who gets targeted benefits, such as food rations and housing. So statistical changes should be kept separate from real gains in welfare.
• Absolute vs relative lines as India grows. A very low line ($3.00/day, 5.25% poor in 2022-23) shows success, but it hides the many people just above it: at $2.15 the rate was 2.35% [3]. As India moves toward middle-income status, a higher line (the $4.20 LMIC line) or a societal line gives a more honest picture of deprivation [2][4].
• Chronic vs transient poverty needs different tools. Asset building, human capital and pensions reduce chronic poverty. Insurance, employment guarantees and safety nets that switch on during shocks protect against transient poverty. A single cash transfer cannot do both jobs.
• The capability view goes beyond income. Falling consumption poverty and a narrowing rural–urban MPCE gap (84% → 70%, 2011-12 to 2023-24) [3] still leave gaps in health, education and urban services. This supports multidimensional measures (MPI) and vulnerability-based targeting of the urban poor (Hashim Committee).