World Bank’s analysis on poverty

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    In News 

    According to a new World Bank report, titled “Poverty and Shared Prosperity 2022: Correcting Course”, the Covid pandemic has been the biggest setback to global poverty alleviation in decades.

    About the report 

    • It provides the latest estimates and trends in global poverty and shared prosperity.
    • The recent report offers the first comprehensive look at the global landscape of poverty in the aftermath of COVID-19 and the war in Ukraine. 

    Major Issues 

    • Global progress in reducing extreme poverty has virtually come to a halt. 
      • After COVID-19 dealt the biggest setback to global poverty in decades, rising food and energy prices—fueled by climate shocks and conflict among the world’s biggest food producers—have hindered a swift recovery. 
    • In 2020 alone, the number of people living below the extreme poverty line rose by over 70 million.
    • The global poverty rate rose from 8.4% in 2019 to 9.3% in 2020. 
    • Global inequalities have widened, evident in the relative impacts felt on incomes in the richest countries as opposed to the poorest; and, unsurprisingly, economic recovery has been similarly uneven.
    • Poorer countries were unable to use fiscal policy as effectively, and thus unable to offset the impact of the pandemic to a much lesser degree than richer countries. 

    Scenario in India 

    • The World Bank report relies on the Consumer Pyramids Household Survey (CPHS) by the Centre for Monitoring Indian Economy (CMIE), in the absence of official poverty data since 2011. By their estimate, 5.6 crore people are likely to have slipped into poverty as India’s GDP fell by 7.5% in FY 2020-21
      • The population below poverty line in India stood at 10% in 2020

    Government’s Steps

    • The Government announced a fiscal stimulus worth ?2 lakh crore, or 1% of GDP.
      • However, only a small fraction therein reflected incremental spending. 
    • The minor increase to the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) wage by ?20 per day was a long-pending correction.
    • Government announced Pradhan Mantri Garib Kalyan Ann Yojana (PMGKAY)
      • According to it, 80 crore people in India would get food and is currently estimated to cost about ?3.90 lakh crore.
      •  However, India ranked 107th out of 121 countries in the 2022 Global Hunger Index, demonstrating that food aid is not a long-term solution, and certainly does not solve the problem of chronic malnutrition.
    • India persisted with the reduced corporate tax rate that had been announced in September 2019.
      •  The reduction of corporate tax from 30% to 22% cost the exchequer ?1.84 lakh crore over the last two fiscal years
    • India has repeatedly increased the rates on a wide range of products covered by the Goods and Services Tax as well as increased the prices of cooking and transport fuels. 
      • While indirect taxes may help prop up public finances, they place a disproportionate burden on the poor.

    Suggestions 

    • The World Bank has three specific suggestions when it comes to fiscal policy.
      • Choose targeted cash transfers instead of broad subsidies.
      •  Prioritise public spending for long-term growth.
      • Mobilise tax revenues without hurting the poor.

    Conclusion and Way Ahead 

    • The policy reforms can help in achieving the necessary course corrections, recognizing that it will likely require stronger global growth and focused policy adjustments.
    • Successful fiscal reform will require the support of sufficiently powerful domestic coalitions interested in pursuing policy goals, as well as stepped-up global cooperation

    Mains Practise Question 

    [Q] In respect of the World Bank report, titled “Poverty and Shared Prosperity 2022: Correcting Course”, discuss how governments can optimise fiscal policy to help correct the course.