Poverty, Inequality, and Inclusive Growth

Poverty, Inequality, and Inclusive Growth: Concepts and Approach

• Interrelationship between Poverty, Inequality, and Unemployment

  • Poverty, inequality, and unemployment are inter-related—none can be fully understood without understanding the others.

  • It is necessary to distinguish between absolute poverty and relative poverty.

  • A simple increase in GDP is a necessary but not sufficient condition for equitable growth. Asset-less groups often fail to benefit from GDP growth.

  • Empirical evidence shows uneven benefit distribution during the transition from low-income to high-income economies.

  • Over time, continued growth leads to more equitable distribution—forming the basis of Kuznets’ Inverted U Hypothesis, where inequality first increases and then decreases as income grows.

• Understanding Absolute Poverty

  • Absolute poverty refers to individuals living in destitution or subsistence or below-subsistence levels.

  • This has no direct relation to the national income size.

  • Two broad possibilities:

    • i) The national income is too small to fulfill basic needs of all citizens.

    • ii) Income is adequate, but institutions and practices fail to distribute it equitably—leaving the majority behind while enriching a few.

  • Inclusive growth is essential to lift the poor to a respectable standard of living in either case.

• The Concept of Poverty in Development Literature

  • Poverty is multi-dimensional—not just lack of income but also basic needs like health, education, nutrition, and shelter.

  • It also includes social security and empowerment, giving a broader understanding of whether someone lives decently and respectfully.

  • This broader definition is endorsed by UNDP in the Human Development Report and by the World Bank in the World Development Report.

  • The UN (2001) defines poverty as “a human condition characterised by the sustained or chronic deprivation of the resources, capabilities, choices, security and power necessary for the enjoyment of an adequate standard of living and other civil, cultural, economic, political and social rights.”

• Amartya Sen’s Capability Approach to Poverty

  • Prof. Amartya Sen, Nobel Laureate, defines poverty in terms of capability to function in society.

  • Poverty stems from lack of capability—not just inadequate income, but also poor health, low confidence, or lack of empowerment.

  • This approach shifts the focus from just income to a broader sense of well-being and freedom to live with dignity.

• Human Rights Approach to Poverty

  • In this view, poverty is a violation of human rights—economic, political, civil, and social.

  • Rights include right to education, right to health, right to decent living, and right to employment.

  • These rights ensure individuals remain above the minimum threshold of capability and lead a life of dignity.