Unemployment and Poverty in India

By Ganesh Mankar|Updated : August 25th, 2021

Unemployment and poverty in India is an important topic in economics. Every year in both MPSC State Service and MPSC combined prelims exam we have seen the questions on these topics. This topic is very important for the MPSC State Services Prelims Exam, MPSC Combined prelims exam as well as Maharashtra Police Recruitment etc.

Table of Content

Unemployment and Poverty in India

Different type of Unemployment


  • It is a situation in which people are ready and willing to work at the existing rate of wages but still, they cannot get work.
  • Measurement unemployment and employment are done by NSSO (National Sample Survey Organization) in India.
  • Unemployment data in India are kept under the Ministry of Labour and Employment.

NSSO divide people into the following three categories -

 (a) Working people (engaged in economic activity)

 (b) Not working (looking for work)

 (c) Neither working nor looking for work

  • People in category (a) are called workforce.
  • People in category (b) are called unemployed.
  • People in categories (a) and (b) are called the Labour force.
  • People in category (c) are called not in the Labour force.
  • Number of unemployed = Labour force – Workforce

Types of Unemployment

1.     Structural Unemployment

  • Caused by structural change.
  • Example- technological change, growing population etc.

2.     Frictional Unemployment

  • When people shifted from one job to another and remain unemployed during this interval period.
  • Cyclical Unemployment (Demand Deficiency Unemployment)
  • When people are thrown out of the job due to a decrease in demand.

Example- recession

3.     Disguised Unemployment

  • In this type of employment, people are employed, but their marginal productivity is zero.
  • Example: One man is engaged in some agriculture work, his friend joins him, but the productivity of both remains the same. His friends come under disguised Unemployment.
  • Educated Unemployment
  • If one educated person is not able to get a suitable job suited to his qualification.
  • Example: Engineering graduate is getting clerk post instead of engineer post.

4.     Open Unemployment

  • A condition in which people do not find any work to do.
  • It includes both skilled and non-skilled people.

5.     Under Unemployment

  • When people obtain work, their efficiency and capability are not utilized at their optimum, and they contribute to production up to a limited level.

6.     Voluntary Unemployment

  • In this type of Unemployment, jobs are available, but individual wants to remain idle.
  • Example- lazy people, people who have ancestor property do not want to earn.

7.     Natural Unemployment

  • 2 to 3 % Unemployment is considered natural and cannot be eliminated.

8.     Chronic Unemployment

  • This is caused due to the long-term unemployment present in the economy.

9.     Seasonal Unemployment

  • In this type of Unemployment, people are unemployed for a few months of the year.
  • Example- Farmers 

Poverty in India


  • A condition in which a section of society is unable to fulfil its necessities of life.
  • It is of two types-

 (a) Absolute Poverty

 (b) Relative Poverty

(a) Absolute Poverty

  • In this, we calculate an aggregate value (a figure expressing per capita consumer expenditure) of the minimum quantity of necessities of life.
  • The population whose income level (or expenditure) is below this aggregate value is Below Poverty Line (BPL).
  • In this poverty measure, we expressed the number of poor as a proportion of the total population. This measure also is known as the headcount ratio.
  • Example: 13 Percent of People are BPL.
  • Why we prefer consumption expenditure method instead of income-
  • In per capita income, we cannot separate dependent people (children, senior citizens, etc.) consuming but not earning. So, for correct data calculation, we prefer the consumption expenditure method instead of income.

(b) Relative Poverty

  • In this type of poverty, a person may be above Below Poverty Line but happens to be poor compared to the other person whose income is above his income/consumption.
  • In this type of poverty calculation, the income/consumption distribution of the population in different percentile groups is estimated and compared.
  • It provides inequality present among the total population.
  • Quintile ratio is one of the measures of inequality.
  • Quintile Income Ration= Average income of richest 20 Percent/ Average income of poorest 20 persons

Poverty estimation in India British India

Dadabhai Naoroji estimated poverty in his book “Poverty and Un-British rule in India”, published in 1901.

In 1936, the National Planning committee gave an idea about poverty in undivided India. But data provided by them was not considered as poverty data in the country.

Poverty estimation in Independent India

(A) Dr. V.M. Dandekar and Nilantha Rath (1968-69)

  • Fixed desired minimum nutrition = 2250 calories/day
  • In Rural, money is required to purchase this amount of nutrition- 170 Rs. / year
  • In Urban, money is required to purchase this amount of nutrition- 271 Rs. / year
  • Using this reference, they found that 40 Percent of rural residents and 50 Percent of urban residents were below the poverty line in 1960-61.

(B) Planning commission expert group

  • The planning commission working group first introduced the poverty line concept in 1962.

(i) Alagh Committee

  • Chairman- Y K Alagh
  • Till 1979 poverty estimation was done based on lack of income, but in 1979 Y K Alagh Committee adopted a new approach based on household per capita consumption expenditure basis.
  • This committee defines the first poverty line in India.
  • Daily consumption fixed by the committee in Rural= 2400 calories/day
  • Daily consumption fixed by the committee in Urban= 2100 calories/day
  • Note- In rural India value of consumption was put high because of the physical labour they undergo.

(ii) Lakdawala Committee

  • Formed in 1989.
  • Chairman- D.T. Lakdawala
  • A submitted report in 1993.
  • Daily consumption fixed by the committee in Rural= 2400 calories/day
  • Daily consumption fixed by the committee in Urban= 2100 calories/day
  • The committee used CPI-IL and CPI-AL for estimation of poverty
  • Note- CPI-IL (Consumer Price Index for Industrial Labourers)
  • CPI-AL (Consumer Price Index for Agriculture Labourers)


  • Total people were under BPL in 1993-94 = 36 percent
  • Total people were under BPL in 2004-05 = 27.5 percent

(ii) Tendulkar Committee

  • Formed in 2005.
  • Chairman- Suresh D. Tendulkar
  • Submitted its report in 2009.
  • Changed calorie-based estimation to nutrition, health and other expenditure-based
  • Introduce a new term Poverty Line Basket (PLB), the basket of all goods selected to determine poverty.
  • Consumption quantity fixed the same for both rural and urban people, but the price differs-
  • Daily per capita expenditure for Rural- Rs. 27
  • Daily per capita expenditure for Urban- Rs. 33


  • Overall poverty- 37.2 Percent (in the year 2004-05)
  • Rural- 41.8 Percent (in the year 2004-05)
  • Urban- 25.7 Percent (in the year 2004-05)

(iii) Rangarajan Committee

  • Formed in June 2012.
  • Chairman- Rangarajan
  • Submitted its report in June 2014.
  • Again, adopted the calorie-based approach, which was used in the past.
  • Daily per capita expenditure for Rural- Rs. 33
  • Daily per capita expenditure for Urban- Rs. 47


  • Overall poverty- 29.5 Percent (in the year 2011-12)
  • Rural- 30.9 Percent (in the year 2011-12)
  • Urban- 26.4 Percent (in the year 2011-12)

(C) Reserve Bank of India Report 2012

  • State having least poverty- Goa (5.09 Percent)
  • Union territory having least poverty- Andaman and Nicobar (1 Percent)
  • State having highest poverty- Chhattisgarh (39.93 Percent)
  • Union territory having highest poverty- Dadra and Nagar Haveli (39.31 Percent)

(D) World Bank Report

  • Poverty line-whose income is less than 1.90 $ per day
  • According to the 2015 world bank report-
  • In 2011 India had 12.4 % of people below the poverty line

(E) Asian Development Bank Report

  • According to the 2015 Asian development Report
  • Poverty in India= 21.9 Percent (for 2014) 

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