Poverty in India: Concepts, Measurement and Alleviation for RBI Grade B ESI

Last updated: 2026-11-10 · MockMentor

"Poverty Alleviation and Employment Generation in India" is part of the Growth and Development unit of the RBI Grade B Phase 2 Economic and Social Issues (ESI) syllabus. Poverty is also one of the most frequently asked descriptive themes, because every new survey changes the numbers and the debate around them. This page covers poverty in full: what it means, how India has measured it, what the latest numbers say, and how policy has tried to reduce it. Employment generation has its own page, on employment in India.

In one line: by every measure, the share of Indians in extreme poverty has fallen sharply since 2011-12, but India still has no updated official poverty line, and many people who have left extreme poverty remain only a little above it.

Basic concepts

• Poverty: the inability to meet a minimum standard of living. That minimum can be defined by income, consumption or a set of basic needs.
• Poverty line: the level of income or spending below which a person is counted as poor.
• Head Count Ratio (HCR): the share of the population below the poverty line. It is the most quoted poverty figure.
• Poverty gap: how far, on average, the poor are below the line. It shows the depth of poverty, which the HCR does not.
• Monthly Per Capita Consumption Expenditure (MPCE): a household's monthly spending divided by its members. India measures poverty by consumption, not income, because consumption is easier to survey and more stable.
• Gini coefficient: a measure of inequality from 0 (everyone has the same) to 1 (one person has everything).
• Multidimensional poverty: deprivation in several areas at once, such as nutrition, schooling, sanitation, housing and cooking fuel, regardless of income.

Why in News?

1. In June 2025, the World Bank raised its International Poverty Line from US$2.15 to US$3.00 a day (2021 PPP). At the new line, extreme poverty in India fell from 27.1% in 2011-12 to 5.3% in 2022-23, from about 34.4 crore people to about 7.5 crore.
2. The Household Consumption Expenditure Survey (HCES) 2023-24 put average MPCE at ₹4,122 in rural areas and ₹6,996 in urban areas, excluding the value of free items received from welfare schemes. The urban-rural gap narrowed from 84% in 2011-12 to 70%.
3. In August 2026, the Prime Minister set a new target of 6 crore Lakhpati Didis, women in self-help groups earning at least ₹1 lakh a year, after the earlier target of 3 crore was crossed.

Types of poverty

Absolute and relative poverty

Absolute poverty is falling below a fixed minimum needed to survive: enough food, clothing and shelter. Developing countries, including India, measure this. Relative poverty compares a person with others in the same society, for example everyone earning less than half the median income. Rich countries use it, because almost no one there is absolutely poor, yet many are left out of normal life.

Other ways to classify poverty

The difference between chronic and transient poverty matters for policy. Chronic poverty needs assets, skills and land. Transient poverty needs insurance and safety nets, so that a single shock does not undo years of progress.

Causes of poverty in India

• Low productivity in agriculture, which still employs over two-fifths of workers.
• Slow creation of good jobs outside farming, so labour moves into informal services and construction instead of factories.
• Unequal ownership of land and other assets, and caste and gender barriers to opportunity.
• Weak human capital: poor nutrition, learning outcomes and health care.
• Exposure to shocks: illness, drought, floods and price spikes, with little insurance.
• Regional imbalance: poverty is concentrated in a few large states and in tribal and rain-fed districts.

Early estimates of poverty

Poverty in India was first estimated during colonial rule, largely to show the economic cost of British policy.

• Dadabhai Naoroji, in "Poverty and Un-British Rule in India" (1901), worked out a "subsistence" cost of living from a diet for migrant labourers and estimated a poverty line of between ₹16 and ₹35 per person a year at 1867-68 prices. He linked India's poverty to the "drain of wealth" to Britain.
• The National Planning Committee (1938), set up by the Indian National Congress under Jawaharlal Nehru, proposed a minimum standard of living based on nutrition, housing and other needs.
• The Bombay Plan (1944), written by a group of leading industrialists, suggested a poverty line of about ₹75 per person a year.

After Independence, the first estimates came from the Planning Commission's working group of 1962. In 1971, V.M. Dandekar and N. Rath made the first systematic estimate using National Sample Survey consumption data. They defined the poverty line as the spending needed to get 2,250 calories a day in both rural and urban areas, and estimated that about 40% of the rural population and about 50% of the urban population were poor in 1960-61.

How India has measured poverty

India's poverty estimates were long made by the Planning Commission, using expert groups that set the poverty line and data from the consumption surveys of the National Sample Survey Office (NSSO).

The Tendulkar line for 2011-12 was ₹816 a month per person in rural areas and ₹1,000 in urban areas. The Rangarajan line was higher, at ₹972 and ₹1,407 a month, roughly ₹32 and ₹47 a day. The government did not formally adopt the Rangarajan estimate, and with the Planning Commission replaced by NITI Aayog in 2015, India has had no official poverty estimate after 2011-12.

Why there was a long gap

The consumption survey of 2017-18 was not released because of concerns about data quality. The next full surveys came only in 2022-23 and 2023-24 (the HCES), and they used a new method, the Modified Mixed Recall Period, which captures more spending than older methods. That makes direct comparison with 2011-12 harder, and it is one reason the debate over how far poverty has fallen continues.

Identifying who is poor

Measuring the share of the poor is different from identifying which households are poor so that schemes can reach them. For this, India has used several methods:

• BPL censuses in 1992, 1997 and 2002, conducted by the Ministry of Rural Development, to list rural Below Poverty Line (BPL) households for schemes. The 2002 census used a 13-point score covering land, housing, clothing, food security, sanitation, assets, literacy and labour.
• The Socio Economic and Caste Census (SECC), 2011, which automatically excluded households with certain assets (a motor vehicle, a refrigerator, a government job, income above ₹10,000 a month), automatically included the most deprived (destitute, manual scavengers, primitive tribal groups, bonded labourers), and ranked the rest on seven deprivation indicators. SECC data is still used for PM Awas Yojana (Gramin) and Ayushman Bharat PM-JAY.
• The National Food Security Act, 2013, under which states identify priority households and Antyodaya Anna Yojana families, covering up to 75% of the rural and 50% of the urban population.

Errors of inclusion (non-poor getting benefits) and exclusion (poor being left out) have been a persistent problem with all these lists. Aadhaar-based verification has cut the first; the second remains harder to fix.

The latest picture

Consumption and inequality (HCES 2023-24)

If the value of free items received through schemes, such as foodgrains, laptops or bicycles, is added, average MPCE rises to ₹4,247 in rural and ₹7,078 in urban areas. Spending rose in all major states, and the share of food in the budget kept falling, a common sign of rising living standards.

International poverty lines

The World Bank revises its lines when new estimates of Purchasing Power Parity (PPP) come out. In 2025, it moved to 2021 PPP prices.

The World Bank also uses higher lines for lower middle-income countries (now US$4.20 a day) and upper middle-income countries (US$8.30 a day). At these higher lines, a much larger share of Indians remains poor. That is the main argument of those who say India now needs a higher national poverty line that matches its status as a lower middle-income country.

Multidimensional Poverty Index

The global MPI was developed in 2010 by the Oxford Poverty and Human Development Initiative (OPHI) and the United Nations Development Programme (UNDP). A person is counted as multidimensionally poor if deprived in at least one-third of the weighted indicators.

India's national MPI, built by NITI Aayog on data from the National Family Health Survey (NFHS), uses three dimensions with equal weight and 12 indicators:

Maternal health and bank accounts are India's additions to the global list of ten indicators.

NITI Aayog's January 2024 discussion paper estimated that multidimensional poverty fell from 29.17% in 2013-14 to 11.28% in 2022-23, with about 24.82 crore people moving out of it in nine years. The biggest falls were in Uttar Pradesh, Bihar, Madhya Pradesh, Odisha and Rajasthan. The fastest gains came in cooking fuel, sanitation, bank accounts and housing, the areas targeted by large schemes.

How to read the numbers

Both measures show a large and real fall in extreme deprivation. Three cautions belong in any balanced answer:

1. A fall in the HCR at a low line does not mean people are secure. Many households sit just above the line and can slip back after one illness or job loss.
2. Consumption-based Gini figures understate inequality, because the rich save much of their income. Studies of income and wealth show far higher concentration at the top.
3. Part of the measured fall comes from changes in survey method and the counting of free food and services. That is a real gain in welfare, but it also means households depend on schemes continuing.

Poverty alleviation in India

How the approach has changed

The common lesson across these phases: growth is the most powerful force against poverty, but it reaches the poor faster when they have assets, skills and access to finance, and when safety nets protect them from shocks.

The main programmes today

What has worked

• Direct Benefit Transfers have cut leakages, because money and subsidies go straight into Aadhaar-linked bank accounts.
• Universal coverage of basic services (toilets, electricity, gas, bank accounts) has driven most of the fall in multidimensional poverty.
• Self-help groups have given rural women credit and a source of income, and their repayment record is among the best in Indian finance.
• Free food grains provided a strong floor during and after the COVID-19 pandemic.

What still holds back progress

• Good jobs: most new work is in low-paid self-employment and casual labour, so earnings rise slowly.
• Nutrition: child stunting and anaemia remain high, even where income poverty has fallen.
• Health spending: out-of-pocket costs push many families back into poverty.
• Exclusion errors: the poorest, such as migrants, homeless people and those without documents, are often the hardest for schemes to reach.
• Fiscal strain: states bear a larger share of costs under the new rural employment law, which could limit work in poorer states.
• Climate risk: droughts, floods and heatwaves hit poor households hardest.

Is India's poverty problem solved?

The case that extreme poverty has been nearly eliminated rests on the World Bank and MPI numbers, the rise in real consumption, the fall in inequality of consumption and the reach of basic services. Consumption grew faster in rural areas than in urban areas, which is unusual and points to the effect of transfers and rural infrastructure.

The case for caution is that the lines being used are low for a lower middle-income country, that many households have only just crossed them, that real wage growth has been weak for long periods, and that much of the gain depends on transfers that must continue. Nutrition and learning outcomes have improved more slowly than income measures.

A balanced view is that India has largely beaten destitution, while vulnerability remains widespread. The next goal is to raise the earnings of the bottom 40% through productive jobs, so that their gains last even if transfers are cut.

Way forward

• Set a new official poverty line suited to India's stage of development, and update it with regular consumption surveys.
• Move from entitlements to earnings: skill training, credit and market links for the poor, so that schemes help people climb out of poverty as well as protect them from it.
• Expand health insurance and cut out-of-pocket spending, the most common cause of falling back into poverty.
• Strengthen nutrition, early childhood care and school learning, which decide whether poverty passes to the next generation.
• Use digital public infrastructure to make welfare portable for migrants, so that rations and benefits follow the worker.
• Build climate resilience into anti-poverty schemes through crop insurance, water conservation and climate-proof housing.

Possible exam and interview questions

1. Explain the evolution of poverty measurement in India from the calorie-based approach to multidimensional poverty. (420 words)
2. "India has largely eliminated extreme poverty, but not vulnerability." Critically examine this statement with recent evidence. (620 words)
3. What does the World Bank's revision of the international poverty line mean for India?
4. Compare income poverty and multidimensional poverty. Which is a better guide for policy in India?
5. Interview: Should free food grains continue for 81 crore people when extreme poverty is down to about 5%? Give both sides.

Related reading: national income and per capita income, employment in India, and our analysis of schemes asked in RBI Grade B Phase 1.

More in ESI

• National Income
• Human Development
• Employment
• Sustainable Development
• Economic History and Planning

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