This is a political economy study of poverty in Bangladesh, analysed from the perspectives of new institutionalism and focuses on the institutional constraints to poverty reduction. It argues that in the mainstream economic literature, poverty is not adequately analysed in its historical and political economy context. Consequently, the poverty reduction policy prescriptions, emanating from market-led growth paradigms, have failed to tackle significantly the poverty problems of the post-colonial states. Generalised sUbsistence poverty has been the central challenge for the lives of the majority of the Bangladeshi population since the colonial days. Bangladesh emerged impoverished from its colonial past. Since its political independence in 1971, it received considerable assistance from the donor community in its effort to reduce mass poverty without any Significant success. However, historical evidence suggests that Bengal was relatively a prosperous region in the pre-colonial days. What went wrong for the majority population of Bangladesh to be trapped in subsistence poverty? Why they have been failing to overcome subsistence poverty even after three decades of independence? This study attempts to address these questions. It is argued that Bengal was affected by mass poverty by the 1930s, through a series of institutional changes in land rights, initiated by the colonial rulers since 1793. The forced commercialisation of agriculture, demographic pressures and the collapse of Bengal's jute economy during the 'great depression' in the 1930s, all played a significant role. The post-colonial state of Bangladesh is embedded in social power structure and lacks autonomy and institutional capacity to pursue poverty reducing broad based economic growth. State institutions in Bangladesh are weak, anti-poor and partial towards the rich. They are ineffective in the pursuit of economic growth in general, and in achieving poverty reduction in particular. Social institutions operating at the village level tend to be more influential than those of state. However, social institutions are built on power structure that are dominated and governed by the rich and are anti-poor. They are not designed to address the poverty issue, but to sustain and strengthen existing village power structure based on unequal land and other resource ownership.