'Food subsidies kept severe poverty low during the pandemic,' according to an IMF working paper.

  • April 7, 2022, 10:59 a.m.

The safety net of free foodgrains cushioned COVID’s economic shock, providing insurance to the poor and preventing any sharp increase in extreme poverty levels during the pandemic year 2020, according to a working paper of the International Monetary Fund.

The paper is authored by Surjit Bhalla, Executive Director, IMF for India, Bangladesh, Bhutan, and Sri Lanka and a former part-time member of the Prime Minister’s Economic Advisory Council; New York-based economist Karan Bhasin; and Arvind Virmani, former Chief Economic Adviser to the Government of India. The paper said that extreme

poverty was as low as 0.8 percent in the pre-pandemic year 2019, and food transfers were instrumental in ensuring that it remained at that low level in the pandemic year 2020.

Extreme poverty was defined by the World Bank as the share of people living on less than $1.9 every day as per 2011 purchasing power parity terms, it said. "The low level of extreme poverty—around 0.8 percent in both 2019 (0.76%) and 2020 (0.86%)—is suggestive of the need for the official poverty line to now be PPP $3.2," it added.

The Pradhan Mantri Garib Kalyan Anna Yojana was launched in March 2020 and last month, the Union Cabinet extended the scheme till September 2022.

Under PMGKAY, the center provides 5 kg of food grains per month for free. The additional free grain is over and above the normal quota provided under the National Food Security Act (NFSA) at a subsidised rate of Rs 2-3 per kilogram.

The paper flagged the effect of subsidy adjustments on inequality. "Real inequality, as measured by the Gini coefficient, has declined to near its lowest level reached in the last forty years—it was 0.284 in 1993-94 and in 2020-21 it reached 0.292. Possibly the most surprising result from the incorporation of food subsidies into the calculation of poverty is that extreme poverty has stayed below (or equal to) 1 percent for the last three years."

Note of caution:

Economists caution against using one international poverty line across rural and urban areas where prices diverge.

However, some economists sound a note of caution. "To use that poverty line, what you need is income distribution because $1.9 is income. Officially, we do not produce income distribution data; we have expenditure data. The distribution of income and the distribution of expenditure are never the same, "said Pronab Sen, former Chief Statistician of India, said.

Sen added that usually a national poverty line is built using state-level poverty and price data. "Using an international poverty line has its own problems. The reason being that you have the same metric of $1.9 PPP for all parts of the country, both rural and urban. We know in India that if you go statewise, the price difference can be as much as 30 percent between the high-cost states and the lower-cost states, and between rural and urban, it’s even larger. "

The paper noted that the PPP $1.9 poverty line is no longer appropriate for India. "Nevertheless, it is accepted as the extreme poverty line around the world and is used as a reference standard for claims about the elimination of extreme poverty. By this standard, India can reasonably claim that in pre-pandemic India was on the verge of eliminating extreme poverty, "it said.

It also said that as early as 2016-17, extreme poverty had reached a low of 2 percent. "According to the more appropriate but 68 per cent higher Low Middle Income (LMI) poverty line of PPP (purchasing power parity) $3.2 a day, poverty in India registered 14.8 per cent in the pre-pandemic year 2019-20," the paper noted.

India does not have the latest updated consumption expenditure data. The Ministry of Statistics and Programme Implementation in 2019 cited "data quality issues" and decided against releasing the findings of the Consumer Expenditure Survey results from 2017–18.

Author : Rajdhani Delhi Representative

Rajdhani delhi representative

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