In 2026, India has seen a decline in extreme poverty—dropping to approximately 2% from over 21% a decade ago—poverty remains a multifaceted challenge.
Vicious cycle of poverty continues to affect millions, driven by a complex historical, economic, and social factors. Understanding these causes is essential to realizing India’s goal of becoming a developed nation (Viksit Bharat) by 2047.
1. Population Pressure
One of the most persistent hurdles is the sheer scale of population. Although fertility rate has stabilized, absolute number of people added each year places an immense strain on resources.
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Resource Dilution: High population growth rate outpaces creation of essential services like healthcare, schools, and housing.
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Dependency Ratio: A large percentage of population is under 14 or over 60, meaning fewer earners must support more dependents, reducing ability of households to save and invest.
2. Low Agricultural Productivity
Despite rapid industrialization, nearly 45% of India’s workforce remains tied to agriculture, which contributes less than 18% to GDP.
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In rural areas, more people are working on small plots of land than are actually required, leading to zero marginal productivity.
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Fragmentation of Land: Small and marginal landholdings (often less than 2 hectares) make modern, mechanized farming unaffordable for average farmer.
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Climate Vulnerability: Dependency on monsoons and increasing frequency of floods and droughts (linked to climate change) can cause a stable farming family into debt and poverty overnight.
3. Unemployment and Skill Gap
While jobless growth has been a topic of debate, real issue often lies in quality of employment and employability of workforce.
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Informal Sector Dominance: Over 90% of the Indian workforce is in informal sector. These workers lack social security, health insurance, and job stability.
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Educated Unemployment: A significant gap exists between what education system provides and what modern economy demands. Many graduates lack technical or soft skills required for high-paying roles in service or manufacturing sectors.
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Low Female Labor Participation: Social barriers and domestic responsibilities keep a large portion of female population out of workforce, effectively reducing a household’s potential income.
4. Social and Structural Inequalities
Poverty in India is not just an economic status; it is often tied to identity.
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Caste and Social Exclusion: Historical marginalization of Scheduled Castes (SC) and Scheduled Tribes (ST) has limited their access to land, education, and capital. Even today, Multidimensional Poverty Index (MPI) shows significantly higher poverty rates among these groups.
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Gender Gap: Women does most of unpaid domestic work with low-wage labor, which restricts their ability to escape poverty trap.
5. Economic Factors: Inflation and Debt
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Rising Cost of Living: Persistent inflation in food and fuel prices disproportionately affects poor, who spend a larger share of their income on basic survival.
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Debt Trap: Lack of access to formal banking in some regions forces poor to turn to local moneylenders who charge more interest rates. A single medical emergency or a failed crop can lead to lifelong indebtedness.
Cause of poverty in India is not a single one but a multiple causes. While government initiatives like PM-KISAN, MGNREGA, and Ayushman Bharat have provided a much-needed safety net, long-term solution lies in structural reforms. Transitioning workers from low-productivity agriculture to high-productivity manufacturing and bridging skill gap remain top priorities for 2026 and beyond.