Chapter 2 – Poverty Alleviation & Employment

Generation
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Employment Generation in India

The state of having a paid job—of being employed—is

most commonly referred to as employment. The relation
between an employee & employer is called as
Employment.

In 2020, there were about 900 million people (67%

of total population) in the working age group of 15-
64 in India, which is expected to expand by another
100 million by 2030, despite a declining trend in
fertility rate.

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 Few terms to understand
Working Age Population Dependency ratio

The working age population is It is a measure of the number of

defined as those aged 15 to 64. This dependents aged zero to 14 and over
indicator measures the share of the the age of 65, compared with the total
working age population in total population aged 15 to 64.
population.

What Is Demographic Dividend?

Demographic dividend refers to the growth in an economy that

is the result of a change in the age structure of a country’s
population. The change in age structure is typically brought on
by a decline in fertility and mortality rates.
What Is Demographic Dividend?

• India’s demographic dividend has been the most talked

about phenomena in the world economic forums for
the past few decades.
• India has one of the youngest populations in an ageing
world - around 90% of its population under the age of
60, of which ~35% is under 19 years old.
• Such a young population ensures a potential addition
to the working age group in the coming years.
• In contrast, most of the developed world is growing
older, with more than 20% of its population over the
age of 60.
What is UNEMPLOYMENT?
• It is defined as a situation in which a person is
capable of working both physically and mentally at
the existing wage rate, but is unable to find a job to
work.
• This might also include those people in the workforce
who are working but do not have an appropriate job.

Unemployment is often used as a measure of the health of the

economy. The most frequent measure of unemployment is the
unemployment rate, which is the number of unemployed people
divided by the number of people in the labor force.
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Types of
Unemployment

Involuntary Voluntary
Unemployment Unemployment

9 TYPES of
INVOLUNTARY
UNEMPLOYMENT
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Open Unemployment - situation where in a large section of

the labour force does not get a job that may yield them regular
income. People are able to work and are also willing to work
but there is no work for them.

Structural unemployment - unemployment arising from the

mismatch between the jobs available in the market and the skills
of the available workers in the market.

Frictional unemployment – the time period between jobs when

a worker is searching for, or transitioning from one job to
another.
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Cyclical Unemployment - It occurs because of cyclical fluctuations in

the economy, which are, Phases of boom, recession, depression
and recovery
Under-employment - situation under which employed people
are contributing to production less than they are capable of.
Disguised Unemployment - When more people are engaged in
a job than actually required, a state of disguised
unemployment is created.
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Seasonal Unemployment - occurs only during
seasonal months of the year. In India, it is very
common in agriculture sector.
 Casual
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contracts, which are terminable any time. This occurs where workers
are employed on a day- to-day basis.
In industries such as building construction, catering or agriculture,
where workers are employed on a day- to-day basis, there are chances
of casual unemployment occurring due to short-term contracts, which
are terminable any time.

Chronic Unemployment – It refers to prolonged unemployment in the

economy. In other words, chronic unemployment is caused due to the
long-term unemployment persisting in the economy.
Rapid growth of population and inadequate level of economic
development on account of vicious circle of poverty are the main
causes for chronic unemployment.
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Previous Year Questions

NABARD Grade A 2018 – Phase 2

What type of unemployment occurs when a worker loses his/her current job and is in the
process to find a new one?

A. Cyclically unemployed
B. Seasonally unemployed
C. Structurally unemployed
D. Frictionally unemployed
E. None of the above
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Unemployment Rate
 Natural Unemployment Rate
The natural unemployment rate is the minimum
unemployment rate resulting from real or voluntary
economic forces.
It reflects workers moving from job to job, the
number of unemployed replaced by technology, or
those lacking the skills to gain employment.
• It is the rate of unemployment towards which the
economy moves in the long term.
• Because of natural unemployment, 100% full employment
is unattainable in an economy.
 Unemployment – relation with Inflation

The Phillips curve is an economic

theory that inflation and
unemployment have a stable and
inverse relationship.

It was developed by William Phillips, it

claims that with economic growth
comes inflation, which in turn should
lead to more jobs and less
unemployment.
 Phillips Curve

• The Phillips curve is an economic concept, which states that

inflation and unemployment have a stable and inverse
relationship.
• This concept was proposed by A.W. Phillips in his paper
published in 1958 after using data obtained from Britain

• It was a concept used to guide macroeconomic policy in the

20th century but was called into question by the stagflation of
the 1970’s in USA.
• Then Economists developed a new concept from the Phillips
Curve, called as LONG RUN PHILLIPS CURVE.
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Previous Year Questions

NABARD Grade A 2017 – Phase 1

Q. Which of the following curve is the graphic representation of inflation

and unemployment in an economy?

A. Phillips Curve
B. Lorenz Curve
C. Laffer Curve
D. Kuznets Curve
E. None of the above
What are the Causes of Unemployment?

1. Lack of Education/Skills: Huge workforce associated with informal sector

due to lack of required education/ skills, which is not captured in any
employment data. For ex: domestic helpers, construction workers etc.

2. Issues Regarding Joint Families: In big joint families having big

business, many such people will be available who are not employed
and depend on the joint income of the family.

3. Rapid Growth of Population: Constant increase in population has

been a big problem in India. As with an increase in the labour force
the rate of unemployment also increases due to the unavailability of
required jobs.
What are the Causes of Unemployment?

4. Dominance of Agriculture: Still in India nearly half of the

workforce is dependent on Agriculture and Agriculture is still
underdeveloped in India. Also, it provides seasonal employment.

5. Defects in Education System: Jobs in the capitalist world have

become highly specialised but India’s education system does not
provide the right training and specialisation needed for these jobs.
Thus, many people who are willing to work become unemployed due
to lack of skills.
 How is unemployment measured in India?

National Sample Survey Office (NSSO), an organisation under the Ministry of Statistics
and Programme Implementation (MoSPI) measures unemployment in India on the
following approaches:

1. Usual Status Approach: This approach estimates only those persons as

unemployed who had no gainful work for a major time during the 365 days
preceding the date of survey.

2. Weekly Status Approach: This approach records only those persons as unemployed
who did not have gainful work even for an hour on any day of the week preceding
the date of the survey.

3. Daily Status Approach: Under this approach, the unemployment status of a person
is measured for each day in a reference week. A person who has no gainful work
even for 1 hour in a day is described as unemployed for that day.
Measuring Poverty
 Measuring Poverty

A common method used to

estimate poverty in India is based on
the income or consumption levels.
If the income or consumption for any
household falls below a given minimum
level, then the household is said to be Below
the Poverty Line (BPL).
Poverty line estimation in India is based on the consumption
expenditure and not on the income levels, due to reasons
like Variation in income, additional income and data
collection methodologies.
 Committees for Poverty Estimation
Pre-Independence Poverty Estimation
1901 –

• Dadabhai Naoroji through his book, “Poverty

and Unbritish Rule in India” made the earliest
estimation of poverty line (₹16 to ₹35 per capita
per year).
• It was based on the cost of a subsistence or
minimum basic diet (rice or flour, dal, mutton,
vegetables, ghee, vegetable oil, and salt).
Committees for Poverty Estimation

1938 –

• National Planning Committee was set up by Subhash Chandra

Bose under the chairmanship of Jawaharlal Nehru for the
purpose of drawing up an economic plan with the fundamental
aim to ensure an adequate standard of living for the masses.
• This committee devised a poverty line (ranging from ₹15 to ₹20
per capita per month).
• It was based on a minimum standard of living perspective,
where nutritional requirements were important.
Committees for Poverty Estimation

1944 –

• The Bombay Plan (1944) proponents had suggested a

poverty line of ₹75 per capita per year.
• This line was much higher than that of the National Planning
Committee.
• The Bombay Plan was a set of a proposal of a small group of
influential business leaders in Bombay for the development
of the post-independence economy of India.
 Post-Independence Poverty Estimation
Expert committees

Planning Commission Working Group (1962)

• It was a working group constituted by the Planning

Commission.
• It formulated the separate poverty lines for rural and urban
areas (₹20 and ₹25 per capita per year respectively), without
any regional variation.
• The poverty line excluded expenditure on health and
education, both of which, were to be provided by the State
 Post-Independence Poverty Estimation
VM Dandekar and N Rath (1971)

• They both were of the view that poverty line must be derived
from the expenditure that was adequate to provide 2250
calories per day in both rural and urban areas.
• They found poverty lines to be Rs. 15 per capita per month for
rural households and Rs. 22.5 per capita per month for urban
households at 1960‐61 prices.
• Expenditure based Poverty line estimation, generated a debate
on minimum calorie consumption norms.
They made the first systematic assessment of poverty in India,
based on National Sample Survey (NSS) data
 Post-Independence Poverty Estimation
Alagh Committee (1979)

• Official poverty counts began for the first time in India based
on the approach of this Task Force
• Poverty line was defined as the per capita consumption
expenditure level to meet average per capita daily calorie
requirement of 2400 kcal per capita per day in rural areas and
2100 kcal per capita per day in urban areas
• Based on 1973-74 prices, the Task Force set the rural and
urban poverty lines at 49.09 and Rs.56.64 per capita per
month
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Lakdawala Committee (1993)

• This Task Force was chaired by DT Lakdawala.

• It did not redefine the poverty line and retained the separate rural
and urban poverty lines recommended by the Alagh Committee at
the national level based on minimum nutritional requirements.

• However, it disaggregated them into state-specific

poverty lines in order to reflect the inter-state price
differentials.
• Over the years, this method lost credibility.
 Suggestions
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• Consumption expenditure should be calculated based on

calorie consumption as earlier.
• State specific poverty lines should be constructed and these
should be updated using the CPI-IW in urban areas and CPI-AL
in rural areas.
• Discontinuation of scaling of poverty estimates based on
National Accounts Statistics.
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Previous Year Questions

RBI Grade B 2017 – Phase 2

Poverty Gap is defined as _________

A. Difference between the poverty line and actual income level.

B. Gap between rich and poor.
C. Gap between developed nation and developing nation.
D. Difference between the poverty line and median income level.
E. None of the above
Tendulkar Committee
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• Chaired by Suresh Tendulkar

• Constituted by - Planning Commission
• Expert group was constituted to review methodology for poverty
estimation and to address the shortcomings of the previous
methods.
• It submitted its report in the year 2009.
Recommendations ofcourses
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• It recommended a shift away from basing the poverty lines

from calorie norms, towards target nutritional outcomes
instead
• It recommended a uniform all-India urban poverty line
baskets (PLB) across rural and urban India, Instead of two
separate PLBs for rural and urban poverty lines.
• It recommended using Mixed Reference Period (MRP) based
estimates, as opposed to Uniform Reference Period (URP)
based estimates used in earlier methods for estimating
poverty.
• It recommended incorporation of private expenditure on
health and education while estimating poverty.
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actual private consumption expenditure per capita near
the poverty line on food, education and health by
comparing them with normative expenditures consistent
with nutritional, educational and health outcomes
respectively.
• Instead of monthly household consumption, consumption
expenditure was broken up into per person per day
consumption, resulting in the figure of Rs 32 and Rs 26 a
day for urban and rural areas.
• As a result, the national poverty line for 2011-12 was
estimated at Rs. 816 per capita per month for rural areas
and Rs. 1,000 per capita per month for urban areas
Rangarajan Committee (2012) The government did not take a
call on the report of the
Rangarajan Committee
Why was it setup?
Due to widespread criticism of Tendulkar
Committee approach as well as due to changing
times and aspirations of people of India.

Its Recommendations
• It reverted to the practice of having separate all-
India rural and urban poverty line baskets and
deriving state-level rural and urban estimates
from these.
• It recommended separate consumption baskets for
rural and urban areas which include food items
that ensure recommended calorie, protein & fat
intake and non-food items like clothing, education,
health, housing and transport.
• This committee raised the daily per capita
expenditure to Rs 47 for urban and Rs 32 for rural
from Rs 32 and Rs 26 respectively at 2011-12 prices
• Monthly per capita consumption expenditure of Rs.
972 in rural areas and Rs. 1407 in urban areas is
recommended as the poverty line at the all India
level
Rs. 20 for Rural & Rs. 25 for
Urban – PER CAPITA PER YEAR

Rs. 15 for Rural & Rs. 22.5 for

Urban – PER CAPITA PER MONTH

Rs. 49.09 for Rural and Rs.56.64

for Urban per capita per month

Same as Alagh Committee

Rs 26 for RURAL and Rs 32 and for

URBAN – per Capita per Day

Rs 32 for rural and Rs 47 for urban

– per Capita per Day
 Poverty Line Estimates – in INDIA

In July 2013, based on the Tendulkar poverty line, Planning Commission

released poverty data for 2011-12.

The number of poor in the country was pegged at 269.8 million or

21.9% of the population.
After this, no official poverty estimates in India have been released.
Planning Commission released the estimates of poverty as
number of persons below poverty line as a percentage of
Indian population for the years – 1973-74, 1977-78, 1983,
1987-88, 1993-94, 1999-2000, 2004- 05, 2009-10 and 2011-12
respectively.
International Poverty Line

• The World Bank defines a person as

extremely poor if she is living on less
than 1.90 international dollars a day,
which are adjusted for inflation as well
as price differences between countries.

• Asian Development Bank too has its own

poverty line which is currently at $ 1.51
per person per day.
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Let us REVISE

Q1. In which of the following types of unemployment,

experience, time and skills of the worker are not fully utilized?
A. Cyclical unemployment
B. Disguised unemployment
C. Under employment
D.Natural unemployment
E. Open unemployment
C. Under employment
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Previous Year Questions

RBI Grade B 2017 – Phase 2

Q2. Poverty Gap is defined as _________

A.Difference between the poverty line and actual income level.

B. Gap between rich and poor.
C. Gap between developed nation and developing nation.
D.Difference between the poverty line and median income level.
E. None of the above
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Let us REVISE

Q3. _______ unemployment is caused due to the long-

term unemployment persisting in the economy.
A. Structural unemployment
B. Open unemployment
C. Seasonal employment
D. Acute unemployment
E. Chronic unemployment
E. Chronic unemployment
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Let us REVISE

Q4. Poverty line estimation in India is based on which of the

following?
A. Income Levels
B. Consumption Expenditure
C. Savings
D.Both A & B
E. Both B & C
B. Consumption Expenditure
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Let us REVISE

Q5. A Working Group on poverty estimation was setup by Planning

Commission in the year 1962. It formulated the separate poverty lines for
rural and urban areas as ₹____ and ₹___ per capita per year respectively.
A. 25, 20
B. 35, 30
C. 30, 35
D.20, 25
E. 25, 35
D. 20, 25
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Let us REVISE

Q6. Task force constituted by the Planning Commission under

the chairmanship of YK Alagh, constructed a poverty line for
rural and urban areas on the basis of ______
A. savings
B. nutritional requirements
C. consumption expenditure
D.Both B & C
E. Both A & B
D. Both B & C
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Let us REVISE

Q7. A Lorenz curve is a graphical representation of the relation

between population and ________
A. inflation
B. unemployment
C. national income
D.economic development
E. Both A & B
C. national income
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Let us REVISE

Q8. The most popular measurement of income inequality is the

______ index, which leverages a simple scale of 0-1 to derive
deviance from a given perfect equality point.
A. Gini
B. Palma
C. Both A & B
D.Mini
E. None of the above
A. Gini
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Let us REVISE

Q9. Multidimensional Poverty is measured by MPI, which is

released by UNDP and OPHI. This Index has ____ dimensions
and _____ indicators.
A. 3 and 4
B. 4 and 3
C. 3 and 10
D.10 and 3
E. 4 and 4
C. 3 and 10
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Let us REVISE

Q10. Which of the following committees, setup for the poverty

estimation in India, raised the daily per capita expenditure to
Rs 47 for urban and Rs 32 for rural at 2011-12 prices?
A. Rangarajan Committee
B. Lakadawala Committee
C. Urjit Patel committee
D.Tendulkar committee
E. Planning Commission Working group
A. Rangarajan Committee