Causes Of Poverty

  1. Vicious Circle of Poverty
  2. Low Resources Endowment
  3. Inequality in the Distribution of Income and Assets
  4. Lack of Access to Social Services
  5. Lack of access to Institutional Credit
  6. Price Rise
  7. Lack of Productive Employment
  8. Rapid Population Growth
  9. Low Productivity in Agriculture
  10. Social Causes


Vicious Circle of Poverty

It is said that “a country is poor because it is poor.” This idea has come down from Ragnar Nurkse who pinpointed the problem of the vicious circle of poverty. Low level of saving reduces the scope for investment; low-level of investment yields low-income and thus the circle of poverty goes on indefinitely.

Low Resources Endowment

A household is poor if the sum total of income earning assets which it commands, including land, capital and labour of various levels of skills, cannot provide an income above the poverty line. The poor mainly consists of unskilled labour, which typically does not command a high enough level of wage income.

Inequality in the Distribution of Income and Assets

The distribution of income and assets also determine the level of income. The economic inequalities are the major cause of poverty in India. It means the benefits of the growth have been concentrated and have not “trickled down” sufficiently to ensure improved consumption among the lower-income groups.

Lack of Access to Social Services

The lack of access to social services such as health and education compound the problems arising from inequality in the ownership of physical and human assets. These services directly affect household welfare. The poor typically get much less than a fair share of such services. This is partly because governments do not invest enough to ensure an adequate supply of these services and the limited supply is mainly availed by non-poor households. Further, the poor may not have adequate access for a variety of other reasons like lack access to information about the existence of such services, lack of knowledge and corruption.

Lack of access to Institutional Credit

The banks and other financial institutions are biased in the provision of loans to the poor for the fear of default in the repayment of loans. Further, the rules regarding collateral security, documentary evidences etc. present constraints for the poor to avail loan facility from banks. The inaccessibility to institutional credit may force poor to take credit from the landlord or other informal sources at a very high interest rate and which in turn may weaken their position in other areas, leading, for example, to the payment of abnormally high rental shares for land, or acceptance of abnormally low wages in various types of “bonded labour” arrangements or selling their crop at a very low price. In some cases poor people cannot make themselves free from the clutches of moneylenders. Their poverty is further accentuated because of indebtedness. Such indebted families continue to remain under the poverty line for generations because of this debt-trap.

Price Rise

The rising prices have reduced the purchasing power of money and thus have reduced the real value of money income. The people belonging to low-income group are compelled to reduce their consumption and thus move below the poverty line.

Lack of Productive Employment

The magnitude of poverty is directly linked to unemployment situation. The present employment conditions don’t permit a reasonable level of living causing poverty. The lack of productive employment is mainly due to problems of infrastructure, inputs, credit, technology and marketing support. The gainful employment opportunities are lacking in the system.

Rapid Population Growth

The faster population growth obviously means a slower growth in per capita incomes for any given rate of growth of gross domestic product (GDP), and therefore a slower rate of improvement in average living standards. Further the increased population growth increase consumption and reduces national savings and adversely affects the capital formation thereby limiting the growth in the national income.

Low Productivity in Agriculture

The level of productivity in agriculture is low due to subdivided and fragmented holdings, lack of capital, use of traditional methods of cultivation, illiteracy etc. This is the main cause of poverty in the rural India.

Social Causes

  1. Education : Education is an agent of social change. Poverty is also said to be closely related to the levels of schooling and these two have a circular relationship. The earning power is affected by investment in individual’s education and training. However, poor people do not have the funds for human capital investment and thus it limits their income.
  2. Caste system : Caste system in India has always been responsible for rural poverty. The subordination of the low-caste people by the high caste people caused the poverty of the former. Due to rigid caste system, the low caste people could not participate in various economic activities and so remain poor.
  3. Social customs : The rural people generally spend a large percentage of annual earnings on social ceremonies like marriage, death feast etc. and borrow largely to meet these requirements. As a result, they remain in debt and poverty.


Bibliography : NIOS – Economics



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