Poverty, inequality, employment and inclusive growth

What to remember

• India's poverty line has moved from a calorie-based line (Alagh) to expenditure-based lines (Lakdawala, Tendulkar, Rangarajan). The MPI now adds non-income deprivation.
• Inequality is shown by the Lorenz curve and measured by the Gini coefficient (0 = perfect equality, 1 = perfect inequality).
• Jobs and financial inclusion drive inclusive growth: MGNREGA, livelihood missions, Mudra, Jan Dhan and self-help groups are the main tools.

Poverty: concepts and measurement

Absolute poverty means a person cannot afford a minimum basket of goods and services. Relative poverty compares a person's income with that of others in the society. India officially uses the absolute idea, through a poverty line: the minimum monthly per capita expenditure needed to buy basic food, clothing, shelter and some other needs.

Common measures:

• Head Count Ratio (HCR): the percentage of people below the poverty line. It does not show how poor the poor are.
• Poverty gap: how far below the line the average poor person is.
• Poverty gap squared (severity): gives more weight to the poorest.
• Sen index: combines the head count ratio, the poverty gap and the distribution among the poor.

Poverty line committees

The Planning Commission (now replaced by NITI Aayog) estimated poverty from NSSO consumer expenditure surveys.

The main change over time is the shift from calorie intake to total consumption expenditure, and later to a wider basket of needs.

Multidimensional poverty. Because income alone does not show deprivation, NITI Aayog publishes a National MPI (health, education and standard of living) using 12 indicators. It counts a person as poor if deprived in at least one third of the weighted indicators.

Inequality

• Lorenz curve: plots the cumulative share of income against the cumulative share of population. The more it bows away from the 45-degree line (the line of equality), the greater the inequality.
• Gini coefficient: the area between the line of equality and the Lorenz curve, as a ratio of the whole triangle. It lies between 0 and 1.
• Palma ratio: the income share of the top 10 per cent divided by the share of the bottom 40 per cent.
• Decile ratio: the income of the top decile to that of the bottom decile.
• Kuznets curve: the idea that inequality first rises and then falls as an economy grows. It has an inverted-U shape.

Inequality has several forms: income, wealth, regional, gender and caste-based. Inclusive growth means growth in which the benefits reach all sections, especially the poor and weaker groups. The Eleventh Five Year Plan used the phrase "faster and more inclusive growth".

Employment and unemployment

The National Statistics Office runs the Periodic Labour Force Survey (PLFS), which gives annual and quarterly estimates. Key terms:

• Labour Force Participation Rate (LFPR): the share of the population aged above a given age that is working or looking for work.
• Worker Population Ratio (WPR): the share of workers in the population.
• Unemployment Rate (UR): the share of unemployed in the labour force.

Approaches to measuring work

• Usual status (principal and subsidiary): based on activity over the previous 365 days.
• Current weekly status (CWS): based on activity in the last seven days.
• Current daily status (CDS): based on each day of the last week.

Types of unemployment

India's informal sector holds a large share of workers, so underemployment (working fewer hours or at low productivity) is as important as open unemployment.

Major employment and poverty programmes (concepts)

• MGNREGA (2005): a rights-based law that promises a guaranteed number of days of unskilled wage work to rural households that demand it; wages are paid in bank accounts. It is being replaced by the Viksit Bharat - Guarantee for Rozgar and Ajeevika Mission (Gramin) (VB-G RAM G) Act, 2025, which guarantees 125 days of work, with Centre-State cost sharing of 60:40, from 1 July 2026.
• DAY-NRLM (National Rural Livelihoods Mission, 2011): forms women's self-help groups and gives them credit and training. It replaced the earlier SGSY.
• DAY-NULM: the urban livelihood mission, with skills and credit for the urban poor.
• PMEGP: a credit-linked subsidy scheme to set up micro enterprises, implemented through KVIC.
• Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY): placement-linked skilling for rural youth.
• PM SVANidhi: working capital loans for street vendors.
• Stand-Up India: bank loans for women and SC/ST entrepreneurs.

Andhra Pradesh. The state is well known for its women's self-help group movement, run through the Society for Elimination of Rural Poverty (SERP), which began as the Velugu programme with World Bank support. The state also has Stree Nidhi, a cooperative credit federation for SHG women. DWCRA (Development of Women and Children in Rural Areas) started in the 1980s and was an early SHG-based scheme.

Financial inclusion

Financial inclusion means giving all people, especially the poor, access to formal banking, credit, insurance and payments at affordable cost.

• Pradhan Mantri Jan Dhan Yojana (PMJDY): launched on 28 August 2014. It offers zero-balance basic savings accounts, a RuPay debit card with accident insurance cover, and an overdraft facility. The "JAM trinity" is Jan Dhan, Aadhaar and Mobile, used for direct benefit transfer (DBT).
• Pradhan Mantri Mudra Yojana (2015): collateral-free loans to micro and small units, in categories Shishu (smallest), Kishor and Tarun, with Tarun Plus (up to Rs 20 lakh) added in 2024.
• Microfinance: small loans to the poor without collateral. In India it works through two channels: the SHG-Bank Linkage Programme (started by NABARD in 1992) and Microfinance Institutions (MFIs), many of which are non-banking finance companies regulated by the RBI. The Grameen Bank model of Muhammad Yunus in Bangladesh inspired the global microfinance movement.
• Other tools: business correspondents, payments banks, UPI and the Pradhan Mantri Jeevan Jyoti Bima and Suraksha Bima schemes.

Linking growth, jobs and poverty

Growth reduces poverty faster when it creates jobs for the poor. Agriculture still holds many workers at low productivity, so a shift of workers to manufacturing and services is needed. Another path is raising the quality of work: moving workers from casual wage jobs to regular salaried jobs, and from informal to formal firms. Social protection, such as food security through the Public Distribution System, pensions and health insurance, supports the poor while the shift takes place. Direct benefit transfer (DBT) cuts leakages by sending subsidy money straight to the bank account of the beneficiary. Women's work participation is a special concern, because a low female LFPR means a large pool of talent is unused.

Exam traps

• The Alagh norm is calorie-based; Tendulkar is expenditure-based and includes health and education.
• Lakdawala gave state-wise lines; Tendulkar gave a single rural-urban basket.
• The head count ratio ignores the depth of poverty; the poverty gap shows it.
• A higher Gini value means higher inequality.
• Disguised unemployment is not the same as seasonal unemployment.
• Frictional unemployment is short-term and is not a sign of weak demand.
• Usual status uses 365 days; weekly status uses seven days.
• Jan Dhan was launched in 2014; Mudra in 2015.
• SHG-Bank Linkage was started by NABARD, not the RBI.

One-liners

• 1. India's official poverty estimate uses expenditure, not income.
• 2. The Planning Commission was replaced by NITI Aayog.
• 3. The Gini coefficient is zero for perfect equality.
• 4. The Lorenz curve is plotted against the 45-degree equality line.
• 5. PLFS is conducted by the NSO.
• 6. MGNREGA became law in 2005.
• 7. DAY-NRLM was launched in 2011.
• 8. PMJDY was launched on 28 August 2014.
• 9. JAM stands for Jan Dhan, Aadhaar and Mobile.
• 10. Mudra loans are Shishu, Kishor and Tarun.
• 11. NABARD started SHG-Bank Linkage in 1992.
• 12. SERP runs the SHG movement in Andhra Pradesh.

Practice questions

1. Which committee fixed the poverty line on a calorie norm of 2,400 (rural) and 2,100 (urban)?

   1. C. Rangarajan
   2. D.T. Lakdawala
   3. Suresh Tendulkar
   4. Y.K. Alagh task force
   Answer

   D. Y.K. Alagh task force

   The 1979 Alagh task force used calorie norms.

2. State-specific poverty lines were recommended by

   1. Tendulkar Committee
   2. Dandekar and Rath
   3. Rangarajan Committee
   4. Lakdawala Committee
   Answer

   D. Lakdawala Committee

   The Lakdawala Committee (1993) suggested state-wise lines.

3. The Tendulkar Committee moved poverty estimation away from

   1. State-wise estimates
   2. Household expenditure surveys
   3. Price indices
   4. A fixed calorie norm
   Answer

   D. A fixed calorie norm

   It used a basket including health and education spending instead of a calorie norm.

4. Which body replaced the Planning Commission?

   1. National Development Council
   2. Inter-State Council
   3. NITI Aayog
   4. Finance Commission
   Answer

   C. NITI Aayog

   NITI Aayog replaced the Planning Commission.

5. The percentage of people below the poverty line is called

   1. Head count ratio
   2. Palma ratio
   3. Gini coefficient
   4. Poverty gap
   Answer

   A. Head count ratio

   HCR counts the poor as a share of population.

6. Which measure shows how far below the poverty line the average poor person falls?

   1. Unemployment rate
   2. Decile ratio
   3. Head count ratio
   4. Poverty gap
   Answer

   D. Poverty gap

   The poverty gap shows depth of poverty.

7. The Gini coefficient takes a value of 0 when

   1. Half the people are poor
   2. One person has all income
   3. Everyone has equal income
   4. Inflation is zero
   Answer

   C. Everyone has equal income

   Zero means perfect equality.

8. The curve showing the cumulative share of income against cumulative share of population is the

   1. Lorenz curve
   2. Phillips curve
   3. Engel curve
   4. Laffer curve
   Answer

   A. Lorenz curve

   The Lorenz curve is used to show inequality.

9. The inverted-U relationship between growth and inequality is known as the

   1. Philips line
   2. Kuznets curve
   3. Lorenz curve
   4. Phillips curve
   Answer

   B. Kuznets curve

   Kuznets suggested inequality first rises, then falls with growth.

10. Which survey provides regular estimates of employment and unemployment in India?

    1. Economic Survey
    2. Census
    3. Agricultural Census
    4. Periodic Labour Force Survey
    Answer

    D. Periodic Labour Force Survey

    PLFS is conducted by the NSO.

11. Unemployment in which workers are more than needed, so removing some does not reduce output, is called

    1. Frictional unemployment
    2. Seasonal unemployment
    3. Disguised unemployment
    4. Cyclical unemployment
    Answer

    C. Disguised unemployment

    This is the usual meaning of disguised unemployment in agriculture.

12. Unemployment during the gap between leaving one job and joining another is

    1. Structural
    2. Cyclical
    3. Frictional
    4. Technological
    Answer

    C. Frictional

    Frictional unemployment is short-term job switching.

13. A mismatch between workers' skills and available jobs causes

    1. Structural unemployment
    2. Disguised unemployment
    3. Frictional unemployment
    4. Seasonal unemployment
    Answer

    A. Structural unemployment

    Structural unemployment arises from skill mismatch.

14. Unemployment caused by a downturn in the business cycle is

    1. Frictional
    2. Seasonal
    3. Structural
    4. Cyclical
    Answer

    D. Cyclical

    It follows the fall in aggregate demand.

15. Which employment guarantee law was enacted in 2005?

    1. Stand-Up India
    2. MGNREGA
    3. DDU-GKY
    4. PMEGP
    Answer

    B. MGNREGA

    MGNREGA is a rights-based rural work guarantee law.

16. The National Rural Livelihoods Mission mainly works through

    1. Private contractors
    2. Land reform
    3. Cooperative banks only
    4. Women's self-help groups
    Answer

    D. Women's self-help groups

    DAY-NRLM mobilises poor women into SHGs.

17. PMEGP is a credit-linked subsidy scheme implemented through

    1. NABARD
    2. KVIC
    3. IRDAI
    4. SEBI
    Answer

    B. KVIC

    KVIC is the nodal agency for PMEGP.

18. Pradhan Mantri Jan Dhan Yojana was launched in which year?

    1. 2005
    2. 2016
    3. 2014
    4. 2011
    Answer

    C. 2014

    It was launched on 28 August 2014.

19. JAM trinity stands for

    1. Jan Dhan, Aadhaar and Mobile
    2. Jan Dhan, Atal and Mudra
    3. Jobs, Aadhaar and Money
    4. Jobs, Agriculture and Manufacturing
    Answer

    A. Jan Dhan, Aadhaar and Mobile

    JAM links bank accounts, ID and phones for DBT.

20. Mudra loan categories, from smallest to largest, are

    1. Tarun, Kishor, Shishu
    2. Kishor, Shishu, Tarun
    3. Shishu, Tarun, Kishor
    4. Shishu, Kishor, Tarun
    Answer

    D. Shishu, Kishor, Tarun

    Shishu is the smallest loan band.

21. The SHG-Bank Linkage Programme was started by

    1. RBI
    2. SIDBI
    3. NABARD
    4. IDBI
    Answer

    C. NABARD

    NABARD started it in 1992.

22. In Andhra Pradesh the Society for Elimination of Rural Poverty is best known for

    1. Running ports
    2. Promoting women's self-help groups
    3. Giving crop insurance
    4. Collecting land revenue
    Answer

    B. Promoting women's self-help groups

    SERP (Velugu) built the SHG movement.

23. Which poverty measure considers deprivation in health, education and standard of living?

    1. Multidimensional Poverty Index
    2. Gini coefficient
    3. Head count ratio
    4. Palma ratio
    Answer

    A. Multidimensional Poverty Index

    The MPI uses non-income indicators.

24. Which is the best example of seasonal unemployment?

    1. A worker moving between two jobs
    2. A factory worker replaced by a robot
    3. A graduate waiting for a job offer
    4. A farm labourer idle after harvest
    Answer

    D. A farm labourer idle after harvest

    Work available only in some seasons is seasonal unemployment.

25. A rise in the Palma ratio indicates

    1. Higher inequality
    2. Rising literacy
    3. Lower inequality
    4. Falling poverty
    Answer

    A. Higher inequality

    It compares top 10% share with bottom 40% share.

26. If a person is deprived in at least one third of weighted indicators in the MPI, the person is classed as

    1. Unemployed
    2. Multidimensionally poor
    3. Financially excluded
    4. Absolutely poor by calorie norm
    Answer

    B. Multidimensionally poor

    This is the usual cut-off for the MPI.

27. Which type of unemployment is most closely linked to rapid automation?

    1. Frictional
    2. Disguised
    3. Technological
    4. Seasonal
    Answer

    C. Technological

    Machines replacing workers cause technological unemployment.

28. Which scheme provides placement-linked skill training to rural youth?

    1. Stand-Up India
    2. DDU-GKY
    3. PMJDY
    4. PM SVANidhi
    Answer

    B. DDU-GKY

    DDU-GKY is the rural skilling and placement scheme.

29. The Jan Dhan account offers which of the following features?

    1. Zero balance with RuPay debit card
    2. Minimum balance of Rs 10,000
    3. Only a cheque book
    4. Mandatory fixed deposit
    Answer

    A. Zero balance with RuPay debit card

    PMJDY accounts are zero-balance basic accounts.

30. Consider the following statements: 1. The Lakdawala Committee gave state-specific poverty lines. 2. The Alagh task force based its line on income tax data. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    Alagh used a calorie norm, not tax data.

31. Consider the following statements: 1. The poverty gap shows the depth of poverty. 2. The head count ratio shows the depth of poverty. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    HCR only counts the poor; the gap shows depth.

32. Consider the following statements: 1. A Gini coefficient of 0.9 shows more inequality than 0.3. 2. The Lorenz curve of perfect equality is the 45-degree line. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    C. Both 1 and 2

    Both statements are correct.

33. Consider the following statements: 1. Disguised unemployment is usual in the agricultural sector. 2. Frictional unemployment is long-term and permanent. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    Frictional unemployment is short-term.

34. Consider the following statements: 1. Usual status is based on the previous 365 days. 2. Current weekly status is based on activity in the last 365 days. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    Weekly status uses the last seven days.

35. Consider the following statements: 1. Jan Dhan accounts need a high minimum balance. 2. PM Jan Dhan Yojana was launched in 2005. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    D. Neither 1 nor 2

    They are zero-balance accounts and the scheme began in 2014.

36. Consider the following statements: 1. The SHG-Bank Linkage Programme lends to groups of poor members. 2. The SHG-Bank Linkage Programme was started by the RBI in 1992. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    NABARD started it.

37. Consider the following statements: 1. Mudra loans are meant only for large corporations. 2. Mudra loans must have collateral. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    D. Neither 1 nor 2

    They are collateral-free loans for micro and small units.

38. Consider the following statements: 1. The Planning Commission was replaced by the Finance Commission. 2. Poverty estimates in India are based on household income tax returns. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    D. Neither 1 nor 2

    NITI Aayog replaced it, and estimates use expenditure surveys.

39. Consider the following statements: 1. The Kuznets curve suggests inequality falls continuously with growth. 2. The Kuznets curve is U-shaped. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    D. Neither 1 nor 2

    It is an inverted-U shape.

40. Consider the following statements: 1. The National MPI is published by RBI. 2. The National MPI of India uses 12 indicators. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    B. 2 only

    NITI Aayog publishes it.

41. Consider the following statements: 1. Educated unemployment refers to educated persons who cannot find suitable work. 2. Educated unemployment means unemployment among illiterate persons. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    Educated unemployment concerns persons with education who lack suitable work.

42. Consider the following statements: 1. DBT cannot reduce leakages in subsidies. 2. Direct Benefit Transfer sends subsidy money directly to bank accounts. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    B. 2 only

    DBT is designed to cut leakages.

43. Consider the following statements: 1. DAY-NRLM replaced the earlier SGSY. 2. DWCRA was a scheme based on self-help groups. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    C. Both 1 and 2

    Both statements are correct.

44. Consider the following statements: 1. Microfinance institutions are regulated by RBI when they are NBFC-MFIs. 2. Microfinance involves large collateral-backed loans. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    Microfinance gives small loans, often without collateral.

45. Consider the following statements: 1. Tendulkar used one common basket for rural and urban areas. 2. Rangarajan used separate baskets for rural and urban areas. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    C. Both 1 and 2

    Both statements are correct.