Circle of Poverty:

Poverty is not only concerned with lack of money or wealth. Poverty is lack of shelter and house, lack of pure drinking water, lack of food, lack of education, lack of medical facility, lack of job while having enough qualification.  Poverty is the scarcity of basic needs of life i.e. food, shelter, water, education, etc. Poverty deadly affects the life of people. The Marketing Heaven wrote about this topic on social networks and in this way developed awareness among people about this problem in society. Poverty is not the result of one or more causes but several factors that act and react in such a way to form a vicious circle of poverty. It keeps a country at a constant low level of development.

What is Poverty?

Poverty is a denial of choices, a state when a person is unable to satisfy his basic needs of life. Poverty refers to the inability to acquire basic goods and services for life i.e. food, shelter, medical facility, etc.

Kinds of Poverty:

Poverty can be classified into two kinds based on its nature;

Absolute Poverty:

Scarcity of basic needs of life or being unable to have enough money to satisfy the necessities of daily life is known as absolute poverty i.e. food, shelter, health facilities, etc.

Relative Poverty:

Relative poverty refers to the scarcity of social resources or income as compared to other people living in the country i.e. loss of dignity, low self-esteem, freedom of speech, powerlessness, etc.

Causes of Poverty:

There are numerous causes which results in poverty;

Low per capita income:

Per capita income means the income of a country divided by the total population which is equal to the average income of every person living in a country. Per capita income is the earnings of a person to fulfill his needs and expenses. When per capita income falls, it gives rise to the poverty level in the country.

Per Capita Income= National Income/Population

Lack of savings and Investments:

When people have income equal to or less than their expenses, they won’t be capable of savings. Even people have no sufficient amount of money to fulfill their basic needs and therefore savings are found impossible. Lack of savings leads to a lack of investments and business units suffer when they unable to fulfill the capital needs of the business.

Downsizing and unemployment:

Surplus funds (savings) are invested to fulfill the capital needs of existing businesses or to start new businesses.  Shortage of excess money declines the investment in industry and businesses. This causes unemployment or downsizing (reducing existing workforce) when business organizations suffer the problem regarding capital needs.

Scarcity of financial institutions:

The unavailability of finance also gives rise the financial problems for industry and agriculture. It affects the functioning of financial institutions because they receive funds from investors in the shape of savings and lend money to business units and earn profits from the difference of Rate of Interest and Rate of Return.

Increase in inflation:

Inflation refers to a persistent increase in the price level in a country. An increase in the price level of basic needs like food, water, shelter, etc. may cause no or low accessibility for people of very low incomes. Inflation means too much money chasing too few goods. Inflation rate increment is an important factor enhancing the poverty level of a country. The purchasing power of consumers decreases with an increase in the price level.

Impact on stock markets:

The stock market is known as an economic indicator of a country. Low stock exchange trading indicates bad economic conditions of a country because it is a place where shares and securities of business organizations are listed for trading. As a result, business units fail to attract investments and it gives rise to the level of poverty. Foreign investors invest millions of dollars in the form of portfolio investments in stocks and the stock exchange index gets rises. Then they withdraw their investment along with profits and the market collapsed. Consequences are faced by the local investors.

Low Foreign Direct Investment:

Investments from a foreign source are an important means of economic development. Due to FDI new job opportunities are created as well as initiation of new industries or businesses. But low FDI reduces these benefits. Every business needs capital when needs arise. But due to a shortage of foreign investments business organizations suffer a lot besides their employees.

Lack of Education and Modern Earnings:

From few past decades, numerous means of modern earnings have been introduced i.e. e-commerce, freelancing, online shopping, affiliate marketing, online tutoring and teaching, graphics designing, web development, app development, etc. But people are not much aware of these modern means of earnings. Business units are unable to adopt modern technology and methods of production due to which they fail to meet the international standards and their revenue is decreased which leads to bad financial conditions of society.

Law and Order:

Law and order conditions also create the worst economic problems. Protests, terrorist attacks, etc. create uncertainty in all stock markets, and people making money from stock trading suffer which results in the general price level in the country.

Population Explosion:

The high growth rate in the population is a major reason for the increasing poverty level. The increase in National Income is consumed by an increasing number of people. When the working population is less than the non-working population then it affects the economic conditions of a country. Therefore, many countries are involved in poverty alleviation tools to overcome the problems of overpopulation.

Defense Expenditures:

A major portion of a country’s income is spent on defense expenditures. Every country is facing various issues like Terrorism, extremism, foreign invasion, etc. Therefore, it is compulsory to maintain a sufficient amount of National Income to fulfill national security. So, the governments are bound to spend a lesser amount of funds on projects of public welfare.

Imports Expenditures:

A large portion of revenue is consumed on imports which results in decreased foreign exchange reserves. Foreign exchange is earned by exporting local products and services to foreign countries. Importing luxurious goods is very harmful to economic growth and it often increases the general price level for basic commodities.

Privatization:

When governments are unable to manage public-owned enterprises or have low assets then they privatize the public sector enterprises. As a result, the private sector acquires these companies. Many workers lose their jobs.

Low Tax-to-GDP Ratio:

The ratio of tax collected against the Gross Domestic Products (GDP) is known as the Tax-to-GDP ratio. It implies the collection of tax from the production of goods and services within a year. Hence higher ratio of Tax-to-GDP shows an increased level of GDP and vice versa. A lower ratio implies that the production of goods and services in a year is too low to increase the National Income.

Industrial Backwardness:

Due to low level of capital formation, absence of modern technology, advanced machinery, skilled workforce, high capital-output ratio, the industrial sector lacks efficiency and productivity. Which decreases its revenue and fails to attract more investments. Economies of large scale cannot be achieved without more capital. It affects the function of industries and sometimes they need to downsize which ultimately gives rise to unemployment and poverty level increases also.