A paper published by IMF showed that measures undertaken by the Centre have helped reduce poverty and inequality and that the achievement is an illustration of the robustness of India’s social safety architecture during the COVID pandemic
The Narendra Modi Government received an unusual appreciation from three academics for its handling of food subsidies during the pandemic crisis. Surjit Bhalla, Karan Bhasin and Arvind Virmani, in their paper titled Pandemic, Poverty and Inequality: Evidence from India, studied the distributional consequences of the pandemic support measures announced by the Indian Government. The paper was published by the IMF in April. They have argued that any estimate of poverty that relies on household consumption expenditure derived exclusively from the survey(s) will overestimate poverty rates. Unless the estimation method incorporates the effects of in-kind transfers that reduce the consumption expenditure of households on items supplied free, or at subsidised rates, such adjustments are necessary to arrive at reliable estimates of consumption expenditures and poverty. They have made such an attempt and concluded that food subsidies had reduced poverty consistently since 2013. Better targeting of subsidies and linking their distribution through Aadhar during the Modi regime have had a positive impact on poverty and inequality. Their results also demonstrate that the social safety net provided by expanding India’s food subsidy absorbed a major part of the pandemic shock. It provided the much-needed insurance to the poor and prevented an increase in the prevalence of extreme poverty in India. With in-kind transfers (especially food), the Modi Government was able to end extreme poverty (defined as those earning less than $1.9 per day in terms of purchasing power parity, or PPP) even during the pandemic. Extreme poverty now fell well below 1 per cent, and hence we can move to the next target of reducing lower-middle-income poverty ($3.2 per day PPP).
According to the authors, extreme and lower-middle-income poverty reduced dramatically during the Narendra Modi years. Another surprising but interesting conclusion is about the reduction of income inequalities. There has been a marked decline in the Gini coefficient (a measure of income inequality) to its lowest level in 40 years during the pandemic in 2020-21. The authors attributed the decline to the in-kind transfers, such as the doubling of food entitlement from 5 kg to 10 kg during the pandemic, with 5 kg coming free for the poor. The household consumption expenditures, based on which poverty levels are estimated, typically do not account for subsidised food grains transfer value under the Food Security Act, 2013 (FSA). The Act specified that only the bottom 50 per cent of urban India and the bottom 75 per cent of rural India were to receive the food subsidy. Thus, the population eligible to receive food subsidies reduced from 1280 million in 2013 to 870 million in 2014. The Act came in handy to the Modi Government, which effectively implemented it. In 2020, for the first time since the inception of the PDS system, the government was supplying, in full, the basic food ration needed to the bottom two-thirds of the population (coverage of PDS as per the Food Security Act). Earlier, 5 kg of subsidised rice or wheat were given. The food entitlements have been doubled during the pandemic, and 5 kgs were given free, along with cash benefits of Rs 500 a month to women. The Aadhar-linked delivery of subsidies reduced leakages and ensured that the actual beneficiary got her/his entire allotted entitlement. Payments under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) or even the minimum support prices paid for food grains procured from farmers are also now Aadhar linked.
With in-kind transfers (especially food), the Modi Government was able to end extreme poverty (defined as those earning less than $1.9 per day in terms of purchasing power parity, or PPP) even during the pandemic. Extreme poverty now fell well below 1 per cent, and hence we can move to the next target of reducing lower-middle-income poverty ($3.2 per day PPP)
The authors argued that “The effect of the subsidy adjustments on poverty is striking. As measured by the Gini coefficient, real inequality has declined to near its lowest level in the last 40 years — it was .284 in 1993-94 and in 2020-21, it reached .292. Possibly the more surprising result from the incorporation of food subsidies into the calculation of poverty is that extreme poverty has stayed below (or equal to) one per cent for the last three years. In the pandemic year 2020-21, extreme poverty was at its lowest level ever — 0.8 per cent of the population. Further, as early as 2016-17, extreme poverty had reached a low 2 per cent level.” They also explained how low inflation helped reduce poverty even while growth slowed after 2012. “Real per capita consumption growth (deflated by CPI) grew at 5.9 per cent per annum (during) 2014-19, higher than the 4.0 per cent growth experienced during the highest GDP growth period 2004-11. This consumption growth is relevant for estimates of headcount, poverty and inequality. A pointer to why this poverty decline during a lower GDP growth period (2014-19 vs 2004-11) has happened is provided by the steep decline in inflation — from a CAGR of 8.4 per cent in the high GDP growth period to just 3.6 per cent during 2014-19.”
The Government focussed on the most vulnerable sections during the pandemic, which had a positive impact. “The pandemic relief was provided in three forms. The first was to rely on automatic stabilisers and allow them to operate fully while reducing fees and penalties for non-compliance with regulations such as tax filings, etc. The second was to target new expenditures and subsidies carefully to those most affected by the pandemic. The third approach was coordinating with India’s central bank and providing monetary policy support. This was augmented by providing fiscal resources for a credit guarantee programme…Subsequently, the doubling of entitlements in 2020 helped maintain extreme poverty at the low 0.8 per cent level. Without any food subsidies, extreme poverty in the pandemic year would have increased by 1.05 per cent (from 1.43 per cent to 2.48 per cent) and LMI (lower middle-income poverty with a PPP $3.2 poverty line) by 8 per cent (18.5 per cent to 26.5 per cent).” The authors described this achievement as an illustration of the robustness of India’s social safety architecture as it withstood one of the world’s biggest exogenous income shocks.
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