Poverty is usually measured in terms of income or
consumption expenditure. The main reason for selecting income as one of the
indicators of poverty is that it gives a target certain standard of living.
Moreover information on income is easily available and we can readily calculate
the number of people whose standard of living is below a pre- determined level
of income. However this does not tell us anything about who the poor are, why
they are poor and whether their situation will improve in the long run. In
India a major policy objectives towards poverty relief has been to cater to the
consumption needs of the poor and not necessarily to enable them to get out of
poverty. This type of benefit merely addresses certain aspects of a social and
economic problem like a natural disaster, an unexpected negative income shock, or
economic stagnation. It is focused only on the consequences of poverty, but not
the root causes of the poverty.
However, if a household faces any temporary income shock
then if they forced their children to withdraw from school they thereafter
permanently hamper human capital formation. If human capital formation is
affected in the first stages of life it will affect the ability to build
financial capital and physical capital. Therefore a poor person also needs
insurance against certain types of shocks which affects basic asset formation.