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Poverty, Employment and Income Distribution

Two families earn the same money. One lives in a big city where rent and food cost a lot. The other lives in a small village where the same money buys much more. Are both equally poor, or equally well off? This is why counting poverty is hard. It also shows why we need different tools for poverty, jobs and inequality.
Workers at an MGNREGA worksite
MGNREGA workers on a rural worksite. Photo: Mulkh Singh, Wikimedia Commons, CC BY-SA 4.0.

At a Glance

Four facts to hold on to.

01

58%

Income share of the top 10% (WIR 2026).

02

54.4%

LFPR, June 2026 PLFS bulletin.

03

2005

MGNREGA enacted; 100 days per household.

04

0 to 1

Range of the Gini coefficient.

Poverty lineA minimum income or spending level needed for basic needs.
Disguised unemploymentExtra workers whose exit would not cut output.
Gini coefficientA 0-to-1 measure of inequality.
MPIMultidimensional Poverty Index: health, education, living standards.

Chapter 1: Measuring Poverty

Must Know

What a poverty line is

  • A poverty line is a set minimum income or spending level.
  • A person below it cannot afford basic needs.
  • It has a food part, based on a calorie need.
  • It has a non-food part, such as clothing, housing, schooling and health.
  • Together they make one money figure for a month or a year.

Why lines differ by state

  • The same basket of goods costs different amounts in different places.
  • So India does not use one line for every state.
  • Each state gets its own line, set by its own price levels.
  • A higher line in one state does not mean people there are poorer.
  • It only means the same living standard costs more there.
  • The aim is to compare real living standards, not rupee amounts.

Tendulkar and Rangarajan

  • The Tendulkar committee reported in 2009.
  • The Rangarajan committee reported in 2014.
  • Rangarajan used a higher spending threshold.
  • It added a food component and a normative level of non-food spending.
  • Normative means a level judged to be needed, not just what people happen to spend.
  • Comparing poverty across years needs one consistent line.
  • If the method changes, the poverty count changes too, even if nobody gets richer.
Think it through: two families have the same real living standard but live where prices differ. Should they have the same poverty line?

No. If prices differ, the same rupees buy different things. A fair line must follow the cost of the basket, so the family in the costlier place needs a higher line.

True or False: The same basket of goods can cost different amounts in different states, so poverty lines differ by state.

Chapter 2: Jobs and Work

Good to Know

Disguised unemployment

  • Picture a small family plot that needs three workers.
  • Six family members work on it all day.
  • Three of them add nothing to the harvest.
  • If they leave, output stays the same.
  • That is disguised unemployment. People look employed but are not needed.
  • It is common in Indian agriculture.

Organised and unorganised work

  • The organised sector has regular pay and legal protection.
  • The unorganised sector has small firms, casual work and no written contract.
  • The informal sector is the largest employer in India.
  • Most new jobs are informal.
  • Read more: Organised and Unorganised Sectors of the Indian Economy.

Labour force participation

  • The Labour Force Participation Rate (LFPR) is the share of people working or looking for work.
  • It is about 55% in India.
  • Female participation has been rising since 2022-23.
  • Education keeps many young people out of the labour force.
  • Unpaid home work keeps many women out of counted work.

Jobless growth

True or False: Disguised unemployment means people have no work at all.

Chapter 3: Inequality and Policy

Good to Know

Gini coefficient and Lorenz curve

  • The Gini coefficient runs from 0 to 1.
  • Zero means perfect equality. One means one person has everything.
  • The Lorenz curve plots the cumulative share of income against the cumulative share of people.
  • The more the curve bends away from the straight equality line, the higher the Gini.
  • Both measure inequality. Neither counts the number of poor.

Income and wealth

  • Income is what people earn in a year.
  • Wealth is what they own: land, homes, savings and shares.
  • Wealth is usually far more unequal than income.
  • The World Inequality Report 2026 says the top 10% hold 58% of income and 65% of wealth.

Why distribution matters

Growth and poverty

  • Growth helps cut poverty only when its gains are shared.
  • The sharpest falls in poverty came with growth plus welfare transfers.
  • Growth alone, with rising inequality, cuts poverty more slowly.

True or False: The Gini coefficient counts how many people live below the poverty line.

Chapter 4: MGNREGA, MPI and Capability

Great to Know

MGNREGA 2005

  • The Mahatma Gandhi National Rural Employment Guarantee Act was passed in 2005.
  • It promised 100 days of work to every rural household that asked for it.
  • It was a legal right, not a favour.
  • Workers built assets such as ponds and roads.
  • It was repealed on 1 July 2026.
  • The Viksit Bharat – G RAM G Act, 2025 replaced it, with 125 days of work.
  • Source: PIB.
  • Read more: MGNREGA and the Viksit Bharat G RAM G Act.

Multidimensional Poverty Index

Sen’s Capability Approach

  • Amartya Sen argued that poverty is a lack of real freedoms, not just low income.
  • Alkire and Foster made this idea measurable in 2007.
  • Their method became the base of the global MPI.
  • Read more: Amartya Sen.
Think it through: can a household earn enough and still be poor?

Yes. If the children cannot go to school or the family has no clean cooking fuel or sanitation, the household is deprived on the MPI even with decent income.

True or False: A household can be income-poor without being poor on the MPI, or the reverse.

Chapter 5: Current Affairs and the Exam Trap

Great to Know

Kerala and extreme poverty

PLFS, June 2026

Exam trap: mixing up the tools

  • Gini and the Lorenz curve measure inequality, not the poverty count.
  • The MPI measures deprivation, not income.
  • The poverty line is a money cut-off.
  • MGNREGA questions often test what it does NOT cover.

True or False: The Lorenz curve is used to count how many people are poor.

Exam Edge

Previous Year Questions

Exam angle: real questions on this topic.

  • UPSC CSP 2019, Q24Poverty lines differ by state because of price levels. See the question.
  • CDS II 2024, Q102On the Rangarajan method. See the question.
  • CDS I 2020, Q44On what MGNREGA was NOT meant for. See the question.
  • CDS II 2019, Q91On the Gini coefficient. See the question.
  • UPSC CSP 2026, Q100On the MPI. India’s own additions, Maternal Health and Bank Account, are not in the UNDP global MPI. See the question.

Quick Q&A

Gini range?

0 to 1.

MGNREGA days?

100 (G RAM G: 125).

Why do state lines differ?

Price levels.

Top 10% wealth share?

65% (WIR 2026).

MPI covers?

Health, education, living standards.

0 / 5 correct

🎲 Practice: Poverty and Income Distribution

4 verified questions from this topic.

Question 1 of 1

In which year did the United Nations adopt a formal definition of absolute poverty?

Question 1 of 1

The Multidimensional Poverty Index (MPI) is built on which methodology?

Question 1 of 1

In which year was NREGA (later renamed MGNREGA) originally enacted?

Question 1 of 1

MGNREGA, passed in 2005, guarantees how many days of paid rural work per household per year?
🎲 More Indian Economy Practice
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