Poverty & Economic Inequality - UPSC Key Notes & 15 Solved MCQs
Poverty is a state where individuals lack financial resources to meet basic needs like food and shelter. It creates a cycle of deprivation that hinders human development. Economic inequality refers to the uneven distribution of wealth, which often deepens poverty and creates social friction, challenging the stability of developing nations.
Understanding these concepts is crucial for analyzing government policies and global development goals. It involves studying measurement metrics, causes, and remedial measures like wealth redistribution. For aspirants, mastering this topic provides the analytical framework needed to evaluate social justice initiatives and economic reforms required for a more equitable society.
How is the topic "Poverty & Inequality" Useful for UPSC & other exams?
This topic is fundamental for General Studies Paper I and III, covering Social Issues and Economic Development. It helps aspirants answer questions on inclusive growth, poverty estimation committees, and inequality indices. Understanding these concepts is essential for writing high-scoring essays on social justice and evaluating government welfare schemes in exams.
Quick Revision Notes - Poverty & Economic Inequality?
Keyword Definitions (UPSC / SSC / RRB / SEBI / IBPS / NDA Exams)
- Absolute Poverty: A condition where household income is below a necessary level to maintain basic living standards (food, shelter, housing). It is often measured by the poverty line and does not change with the economic growth of the country unless adjusted for inflation.
- Relative Poverty: This is defined in relation to the economic status of other members of the society: people are poor if they fall below prevailing standards of living in a given societal context. It essentially measures income inequality rather than survival needs.
- Gini Coefficient: A statistical measure of economic inequality in a population. The coefficient ranges from 0 (or 0%) to 1 (or 100%), with 0 representing perfect equality and 1 representing perfect inequality. It is derived from the Lorenz Curve.
- Lorenz Curve: A graphical representation of the distribution of income or wealth within a population. It plots the cumulative percentage of the population against the cumulative percentage of total income they earn. The further the curve is from the diagonal line of equality, the higher the inequality.
- Headcount Ratio: The proportion of a population that exists, or lives, below the poverty line. It is the most common method of measuring poverty and is calculated by dividing the number of poor people by the total population.
- Multidimensional Poverty Index (MPI): A measure that identifies multiple deprivations at the household and individual level in health, education, and standard of living. It offers a more comprehensive view of poverty than income-based measures alone.
- Kuznets Curve: A hypothetical curve that graphs the hypothesis that as an economy develops, market forces first increase and then decrease economic inequality. It suggests that in early development, inequality rises, but eventually falls as the economy matures.
- Poverty Line Basket (PLB): The basket of goods and services necessary to satisfy basic human needs. In India, committees like the Tendulkar and Rangarajan Committees have defined this basket to determine the monetary threshold for the poverty line.
- Universal Basic Income (UBI): A socio-political financial transfer policy proposal where all citizens of a given population regularly receive a guaranteed income, without a means test or work requirement. It is debated as a solution to poverty and job loss due to automation.
- Financial Inclusion: The pursuit of making financial services accessible at affordable costs to all individuals and businesses, irrespective of net worth or size. It is a key strategy to lift people out of poverty by providing access to credit and savings.
- Vicious Cycle of Poverty: A concept that illustrates how poverty causes poverty. Poor people have low income, leading to low savings and low investment, which results in low productivity and low income again, trapping them in a perpetual state of poverty.
Message to Students
Economics is not just about numbers; it is about people and their well-being. Master these concepts to understand the heartbeat of the nation. Stay consistent with your revision, analyze the logic behind every answer, and you will surely ace the exam. Best of luck!
Multiple Choice Questions - Poverty & Economic Inequality
1. Which committee recommended the shift from Calorie Consumption-based poverty estimation to a Monthly Per Capita Expenditure (MPCE) based model in India?
a) Lakdawala Committee
b) Tendulkar Committee
c) Alagh Committee
d) Rangarajan Committee
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Answer: b) Tendulkar Committee
The Suresh Tendulkar Committee (2009) moved away from the calorie anchor and adopted a basket of goods including health and education expenditure to estimate poverty more accurately.
2. The "Gini Coefficient" is a measure used to calculate which of the following?
a) Rate of Inflation
b) Unemployment Rate
c) Income Inequality
d) GDP Growth
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Answer: c) Income Inequality
The Gini coefficient measures the degree of inequality in the distribution of family income in a country. A value of 0 implies perfect equality, while 1 implies perfect inequality.
3. Which organization releases the "Global Multidimensional Poverty Index" (MPI)?
a) World Bank
b) International Monetary Fund (IMF)
c) UNDP and OPHI
d) World Economic Forum
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Answer: c) UNDP and OPHI
The Global MPI is an international poverty measure published by the United Nations Development Programme (UNDP) and the Oxford Poverty and Human Development Initiative (OPHI).
4. What does the "Lorenz Curve" represent graphically?
a) Relationship between tax rates and revenue
b) Relationship between unemployment and inflation
c) Distribution of Income or Wealth
d) Growth of population over time
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Answer: c) Distribution of Income or Wealth
The Lorenz curve plots the cumulative percentage of total income received against the cumulative number of recipients, starting with the poorest individual or household.
5. Which Sustainable Development Goal (SDG) specifically aims to "End poverty in all its forms everywhere"?
a) SDG 1
b) SDG 2
c) SDG 5
d) SDG 10
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Answer: a) SDG 1
SDG 1 is dedicated to ending poverty. It includes targets to eradicate extreme poverty and implement social protection systems for all by the year 2030.
6. Who propounded the "Capability Approach" to assess poverty, emphasizing freedom to achieve well-being?
a) Adam Smith
b) Amartya Sen
c) Mahbub ul Haq
d) Karl Marx
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Answer: b) Amartya Sen
Amartya Sen argued that poverty is not just a lack of money, but a deprivation of basic capabilities and freedoms that allow a person to live a life they value.
7. Which scheme is considered the world's largest social welfare program providing a legal guarantee for 100 days of employment?
a) PM-KISAN
b) MGNREGA
c) Ayushman Bharat
d) PMAY
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Answer: b) MGNREGA
The Mahatma Gandhi National Rural Employment Guarantee Act ensures livelihood security in rural areas by providing at least 100 days of wage employment in a financial year.
8. In the context of poverty, "Antyodaya" means:
a) Welfare of the rich
b) Rise of the middle class
c) Upliftment of the poorest of the poor
d) Universal education
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Answer: c) Upliftment of the poorest of the poor
The concept aims to ensure that the benefits of development reach the last person in the line. The Antyodaya Anna Yojana (AAY) targets the poorest households.
9. The "Poverty Gap Index" is a better measure than the "Headcount Ratio" because:
a) It counts more people
b) It measures the depth or intensity of poverty
c) It is easier to calculate
d) It ignores inflation
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Answer: b) It measures the depth or intensity of poverty
While Headcount Ratio only tells how many people are poor, the Poverty Gap Index tells how far below the poverty line the poor are, indicating the severity of poverty.
10. "Disguised Unemployment" is a common feature in which sector of the Indian economy, contributing to rural poverty?
a) IT Sector
b) Agriculture
c) Manufacturing
d) Banking
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Answer: b) Agriculture
In agriculture, more people are employed than actually required. Their marginal productivity is zero, meaning if some are removed, total output remains the same, masking their poverty.
11. The "Kuznets Curve" suggests that as an economy grows, inequality:
a) Always increases
b) Always decreases
c) First increases, then decreases
d) Remains constant
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Answer: c) First increases, then decreases
It is an inverted U-shaped curve. Simon Kuznets hypothesized that industrialization initially widens the income gap, but eventually, social welfare and trickle-down effects reduce it.
12. Assertion (A): Relative poverty is found even in developed countries.
Reason (R): Relative poverty measures inequality compared to the standard of living of the society.
a) Both A and R are true and R is the correct explanation of A
b) Both A and R are true but R is not the correct explanation of A
c) A is true but R is false
d) A is false but R is true
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Answer: a) Both A and R are true and R is the correct explanation of A
Even in rich nations, some people earn significantly less than the average (R), making them "relatively poor" (A), even if they can afford basic survival needs.
13. Assertion (A): Rapid inflation affects the poor more severely than the rich.
Reason (R): The poor spend a larger proportion of their income on food and basic necessities.
a) Both A and R are true and R is the correct explanation of A
b) Both A and R are true but R is not the correct explanation of A
c) A is true but R is false
d) A is false but R is true
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Answer: a) Both A and R are true and R is the correct explanation of A
Since the poor have little disposable income and spend most of it on consumption (R), a rise in prices (inflation) directly impacts their survival (A), unlike the rich who have savings.
14. Match the Committee with its Contribution to Poverty Estimation:
| List I (Committee) | List II (Feature) |
|---|---|
| A. Alagh Committee (1979) | (i) MPCE (Mixed Recall Period) |
| B. Lakdawala Committee (1993) | (ii) Calorie Intake Requirements |
| C. Tendulkar Committee (2009) | (iii) Modified Mixed Recall Period |
| D. Rangarajan Committee (2014) | (iv) Consumer Price Index (CPI-AL/IW) |
|
Options: a) A-ii, B-iv, C-i, D-iii b) A-i, B-ii, C-iii, D-iv c) A-iii, B-i, C-ii, D-iv d) A-iv, B-iii, C-i, D-ii |
|
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Answer: a) A-ii, B-iv, C-i, D-iii
Alagh used Calories. Lakdawala used CPI for Agri Laborers/Industrial Workers. Tendulkar used MPCE (MRP). Rangarajan used Modified Mixed Recall Period (MMRP).
15. Match the Economic Curve with what it represents:
| List I (Curve) | List II (Relationship) |
|---|---|
| A. Lorenz Curve | (i) Inequality vs Development |
| B. Kuznets Curve | (ii) Tax Rate vs Revenue |
| C. Phillips Curve | (iii) Actual Distribution of Income |
| D. Laffer Curve | (iv) Inflation vs Unemployment |
|
Options: a) A-i, B-iii, C-ii, D-iv b) A-iii, B-i, C-iv, D-ii c) A-ii, B-iv, C-i, D-iii d) A-iii, B-ii, C-iv, D-i |
|
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Answer: b) A-iii, B-i, C-iv, D-ii
Lorenz shows distribution (inequality). Kuznets shows inequality vs growth. Phillips shows inflation vs unemployment. Laffer shows tax rates vs tax revenue.
Final Message for Aspirants
The fight against poverty is the defining challenge of our times. As future administrators, your understanding of these nuances will shape policies that touch millions of lives. Keep your empathy alive and your concepts clear. You have the potential to make a difference.
Top 10 Guessed Short Questions & Answers (UPSC Mains) - Poverty & Economic Inequality
1. Distinguish between Absolute and Relative Poverty.
Absolute poverty is the inability to afford basic necessities like food, shelter, and clothing, often measured by a fixed poverty line. Relative poverty measures inequality, comparing an individual's income to the average income of the society, reflecting social exclusion rather than survival risk.
2. How does the "Vicious Cycle of Poverty" operate?
The vicious cycle operates where low income leads to low savings, resulting in low investment. Low investment causes low productivity, which circles back to low income. This trap makes it difficult for individuals or nations to escape poverty without external intervention or structural change.
3. What are the major causes of poverty in rural India?
Major causes include dependence on erratic agriculture, disguised unemployment, lack of infrastructure, unequal land distribution, and indebtedness. Social factors like the caste system and lack of access to quality education and healthcare further perpetuate rural poverty.
4. Explain the concept of the "Feminization of Poverty".
This refers to the trend where women represent a disproportionate percentage of the world's poor. Causes include the gender wage gap, limited access to assets/credit, burden of unpaid care work, and widowhood, which leave women more vulnerable to economic shocks than men.
5. What is the role of Financial Inclusion in poverty alleviation?
Financial inclusion provides the poor with access to formal banking, credit, insurance, and savings. It prevents exploitation by moneylenders, enables investment in small businesses, and facilitates Direct Benefit Transfers (DBT), ensuring government aid reaches the intended beneficiaries without leakage.
6. Pros and Cons of Universal Basic Income (UBI) for India.
Pros: It provides a safety net, reduces administrative leakage, and empowers the poor with choice. Cons: It creates a massive fiscal burden, may discourage work (labor supply reduction), and could lead to wasteful spending if not coupled with financial literacy.
7. What are the three dimensions of the Multidimensional Poverty Index (MPI)?
The three dimensions are Health (Nutrition, Child Mortality), Education (Years of schooling, School attendance), and Standard of Living (Cooking fuel, Sanitation, Drinking water, Electricity, Housing, Assets). It provides a holistic view of deprivation beyond just income.
8. How does high inflation impact the poverty line estimates?
Since the poverty line is a monetary threshold, high inflation erodes the purchasing power of money. If the poverty line is not adjusted frequently for inflation, it may artificially lower the headcount ratio, failing to capture the actual number of people unable to afford the basket of goods.
9. Discuss the impact of Globalization on economic inequality.
Globalization has reduced absolute poverty by creating jobs but has often increased relative inequality. Skilled workers and capital owners gain disproportionately from global markets, while unskilled labor faces wage stagnation and job insecurity due to automation and outsourcing.
10. What is the "Way Forward" to reduce inequality in India?
The solution lies in inclusive growth: progressive taxation, investment in human capital (health/education), land reforms, and labor-intensive manufacturing. Strengthening social safety nets and ensuring gender parity in the workforce are also critical to bridging the income gap.
Advanced Reading -Poverty & Economic Inequality
If you wonder why you are not able to progress financially despite hard work, then read this article carefully. In a country like India, many reasons for poverty and economic inequality push the common man back. These reasons are not limited to the government or society, but our habits, thinking, and lifestyle are also a big reason for this. Reasons like drugs, alcohol, cigarettes, junk food, unnecessary marriages, and false pride put us in a financial crisis. On the other hand, external factors like low salaries, high interest rates, and wrong government policies further increase this problem. In this article, you will learn how you can move towards a balanced economic life by identifying all these reasons.
Summary Table: Causes of Poverty & Economic Inequality
| Cause | Impact / Explanation |
|---|---|
| Addiction and Bad Habits | Leads to excessive spending, poor health, and reduced income productivity. |
| Junk Food and Unhealthy Lifestyle | Increases disease risk, medical costs, and lowers work output. |
| Show-Off Spending and False Pride | Leads to wasteful consumption and growing personal debt. |
| Diseases and Accidents | Unexpected health events drain finances and can push families into poverty. |
| Low Wages and Informal Jobs | Unorganized workers earn less, lack job security, and face exploitation. |
| Local Financiers and Debt Traps | High-interest informal loans lead to debt cycles and asset loss. |
| Lack of Financial Awareness | Poor budgeting, saving, or investment knowledge causes poor money management. |
| Ethnicity, Caste & Religious Disparities | Social discrimination limits access to jobs, education, and resources. |
| Communal Violence | Destroys property, businesses, and livelihoods, pushing people into poverty. |
| Natural Calamities | Floods, droughts, and disasters displace families and destroy assets. |
| Wars and Conflicts | Result in destruction, migration, loss of life and livelihood. |
How are addiction and bad habits the root of poverty?
Spending on addiction not only ruins health, it also creates a financial crisis. Alcohol addiction eats up monthly earnings and promotes domestic violence. Daily spending on cigarettes slowly eats up savings. Quality of work also gets affected, which prevents a salary increment. It traps one in a cycle of debt and borrowing. Children also get affected by this and become victims of poverty.- Spending on drugs not only ruins health but also creates financial trouble.
- Alcohol addiction eats up monthly income and increases domestic violence.
- Daily spending on cigarettes adds up over time, hurting savings.
- Job performance suffers, leading to stagnant salaries.
- Creates a cycle of borrowing and debt.
- Children also get affected, continuing intergenerational poverty.
Do junk food and unhealthy lifestyle make you poor?
- Eating junk food increases diseases, raising medical costs.
- Outside food expenses disturb budgeting and savings.
- Affects work efficiency and performance.
- Hospital expenses deplete income and savings.
- No scope for emergency fund creation.
- Generational nutritional deficiency continues poverty.
How do waste in show-off and false pride push you into poverty?
Expensive weddings and social functions often trap people in debt. To show off, people buy expensive mobiles, cars, and clothes beyond their means. Loans taken for prestige trap them in the vicious circle of poverty. Due to such habits, people stay away from investment options like wealth creation. Also, they ignore the necessary savings for their old age, making the future insecure.- Expensive weddings and social functions lead to debt.
- People buy luxury items beyond their means to show off.
- Loans for prestige trap people in poverty cycles.
- No investment in wealth generation.
- Retirement savings get ignored.
How do diseases and health care expenses create poverty?
Health care in India is expensive, which affects the poor the most. In case of serious illness, years of savings are lost in a few days. Lack of health insurance further deepens economic inequality. When someone falls ill, working days are missed, and income becomes zero. One has to take loans for treatment, which starts a cycle of economic stress and poverty.- Healthcare is costly, affecting the poor most.
- Savings vanish in serious illnesses.
- No health insurance worsens inequality.
- Lost workdays mean zero income.
- Loans for medical needs increase financial stress.
Market Products & Their Impact on Family Health & Economy
| Market Products | Impact on Health & Economy |
|---|---|
| Liquors & Alcohol | Leads to addiction, liver damage, domestic issues, and drains family income regularly. |
| Tobacco & Gutkha | Causes cancer and lung disease; constant expense with severe health costs. |
| Sugary Foods & Sweets | Leads to diabetes and weight gain; adds to medical and dental expenses. |
| Drugs & Narcotics | Highly addictive and illegal; destroys mental health and causes financial ruin. |
| Gambling & Betting | Quick money loss; leads to debts, family disputes, and emotional breakdown. |
| Loan Apps & Instant Credit | Traps users in high-interest debt cycles; ruins savings and credit score. |
| Packaged Junk Foods | Low nutrition, high cost, and an increased risk of lifestyle diseases over time. |
| Fancy Gadgets & Brand Mania | Leads to unnecessary EMI burden; affects savings and essential spending. |
How are unorganized workers with low salary become poor despite hard work?
Due to low income in India, people are not able to fulfill even their basic needs. They do not get any facilities like PF, insurance, or bonuses. It is also not possible to plan for the future of children. Often, these people depend on loans and get trapped in the trap of moneylenders. The elderly and women are also exploited the most in this system, which further deepens poverty and inequality.- Low income doesn't fulfill even basic needs.
- No benefits like PF, insurance, or a bonus.
- No future planning is possible for children.
- Debt dependency is common.
- Older people and women are exploited.
Do lack of financial education and awareness make you poor?
If you ignore important financial topics like making a budget, saving, and insurance, then by the end of the month, your pocket will be empty. Spending without planning increases financial imbalance. Many people buy things on credit without understanding, which puts their future in danger. There is no education on smart spending, and usually,y the money remains stuck only in low-yielding means.
- Ignorance of budgeting, saving, and insurance.
- End-of-month empty pockets due to mismanagement.
- Buy on interest without understanding the consequences.
- No training in smart spending.
- Investment in only low-yield instruments.
Conclusion: The Solution to Poverty Is in Your Hands
The solution to poverty and economic inequality in India cannot be left to the government alone. Until a person changes their habits, lifestyle, and thinking, no scheme will be effective. If you identify and correct addiction, extravagance, false pride, and financial illiteracy, you can free yourself and your family from poverty.
Online Courses, Reference Books, & Websites
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Brilliant explanation on causes of poverty, well done.
ReplyDeleteClear, simple, and useful. Povery reason understood well
ReplyDelete