Difference between Absolute Poverty and Relative Poverty
Poverty is a multidimensional challenge defined by a lack of essential resources. Economists categorize poverty primarily into two types: absolute poverty and relative poverty. Understanding the distinction between them is crucial for formulating targeted welfare policies and economic interventions.
Conceptual Framework
Absolute Poverty
Absolute poverty refers to a condition where an individual or family lacks the basic necessities required for human survival. This includes food, safe drinking water, sanitation facilities, health, shelter, and education. It is measured against a fixed, universal standard known as the poverty line. This metric is independent of the broader economic environment or the income levels of other people in the society. If an individual’s income falls below this absolute threshold, they are classified as living in absolute poverty, regardless of whether they live in a rich country or a poor country.
Relative Poverty
Relative poverty defines poverty in relation to the average economic standard of a specific society. It reflects the distribution of income within a population rather than a lack of biological survival necessities. An individual is considered relatively poor if their income falls significantly below the median income of their country. For instance, a person might have adequate food and shelter but may lack the resources to participate in standard social, cultural, and economic activities common to their peers. Relative poverty changes as a country grows wealthier or as income inequality fluctuates.
Key Differences Matrix
The following table summarizes the core operational differences between the two poverty metrics.
| Parameter | Absolute Poverty | Relative Poverty |
| Core Definition | Inability to meet basic biological and physical survival needs. | Inability to achieve the average standard of living of a specific society. |
| Measurement Basis | Fixed consumption or income threshold (Poverty Line). | Percentage of median national income or expenditure. |
| Nature of Standard | Constant over time, adjusting only for inflation. | Dynamic, changing as societal wealth and income alter. |
| Primary Focus | Absolute deprivation and physical survival. | Income inequality and social exclusion. |
| Policy Application | Used mostly in developing economies to ensure survival. | Used mostly in developed countries to address inequality. |
| Economic Context | Can be completely eliminated through targeted growth. | Exists inherently in any society with income distribution gaps. |
Measurement Methodologies
Global Metrics for Absolute Poverty
The World Bank establishes the international poverty line to monitor absolute poverty globally. This line is calculated using Purchasing Power Parity (PPP) exchange rates to reflect the actual cost of living across different nations.
- The International Threshold: The primary global absolute poverty line is set at 2.15 per day per person (updated from the previous 1.90 standard using 2017 PPP dollars).
- Societal Poverty Line: The World Bank also uses higher thresholds for middle-income countries, such as 3.65 per day for lower-middle-income nations and 6.85 per day for upper-middle-income nations.
Indicators for Relative Poverty
Relative poverty is assessed using statistical distributions of income rather than fixed consumption costs.
- Median Income Cut-offs: The European Union and the Organisation for Economic Co-operation and Development (OECD) define the relative poverty line as 50% or 60% of the national median disposable income.
- The Gini Coefficient: This statistical measure ranges from 0 (perfect equality) to 1 (perfect inequality) to track income dispersion, which correlates directly with relative poverty levels.
- Lorenz Curve: A graphical representation of wealth distribution used to derive the Gini Coefficient.
Important Facts for Civil Services Exams
- The Multidimensional Poverty Index (MPI) developed by the Oxford Poverty and Human Development Initiative (OPHI) and the United Nations Development Programme (UNDP) tracks absolute poverty across three dimensions: health, education, and standard of living, using 10 specific indicators.
- In India, historical poverty estimation relied heavily on consumption expenditure surveys. The Alagh Committee (1979) linked the poverty line to a daily nutritional requirement of 2400 calories in rural areas and 2100 calories in urban areas. The Lakdawala Formula (1993) updated these criteria using the Consumer Price Index for Agricultural Labourers (CPI-AL) and the Consumer Price Index for Industrial Workers (CPI-IW).
- The Tendulkar Committee (2009) shifted the estimation metric away from bare calorie anchors to an overarching basket of goods that included private expenditures on health and education. This committee established a daily per capita spending threshold of ₹27 in rural areas and ₹33 in urban areas.
- The Rangarajan Committee (2014) revised these poverty thresholds upward to ₹32 for rural areas and ₹47 for urban areas.
NITI Aayog currently publishes the National Multidimensional Poverty Index, which adapts the global MPI methodology to capture deprivations across health, education, and standard of living based on National Family Health Survey (NFHS) data.
