Poverty and Politics of Freebies

In Context 

• The release of working papers of  the World Bank and the International Monetary Fund(IMF) has led to a renewed debate on poverty in India. 

Findings of the World Bank and IMF on poverty in India

• New working papers from the World Bank and the IMF claim that extreme poverty in the country, based on the international definition of $1.90 per capita per day (in purchasing power parity (PPP), has declined substantially (figure 1).
  • The World Bank paper uses the Consumer Pyramid Household Surveys (CPHS) data to conclude that 10.2 per cent of the country’s population was at extreme poverty levels in 2019.

• The IMF paper calculates poverty by using the NSO Consumer Expenditure Survey as the base and adjusts it for the direct effect of the massive food grain subsidy given under the National Food Security Act (NFSA, 2013) and PM Garib Kalyan Anna Yojana (PMGKAY) during the pandemic period. 
  • It claims that extreme poverty has almost vanished 
    •  it was 0.77 per cent in 2019 and 0.86 per cent in 2020.

Debates on Estimation 

• It can be debated  whether the poverty line at $1.9 PPP is too low and needs to be scaled up to $3.2 PPP
  • The IMF estimates that poverty based on $ 3.2 PPP which includes food transfers to be 14.8 percent of the country’s population in 2019.
  •  The World Bank estimates it to be 44.9 percent.

What is Poverty?

• It is a multidimensional concept .
• It can be defined as a condition in which an individual or household lacks the financial resources to afford a basic minimum standard of living.
• Economists and policymakers estimate “absolute” poverty as the shortfall in consumption expenditure from a threshold called the “poverty line”. 
• The official poverty line is the expenditure incurred to obtain the goods in a “poverty line basket” (PLB). 
  • The PLB comprises goods and services considered essential to a basic minimum standard of living — food, clothing, rent, conveyance, and entertainment. The price of the food component can be estimated using calorie norms or nutrition targets. 

How is it measured and its importance?

• Poverty can be measured in terms of the number of people living below this line (with the incidence of poverty expressed as the head count ratio). 
  • The “depth” of poverty indicates how far the poor are below the poverty line.
• Six official committees have so far estimated the number of people living in poverty in India 
  •  the working group of 1962
  • V N Dandekar and N Rath in 1971
  • Y K Alagh in 1979
  •  D T Lakdawala in 1993
  •  Suresh Tendulkar in 2009
  •  C Rangarajan in 2014. 
  • The government did not take a call on the report of the Rangarajan Committee; therefore, poverty is measured using the Tendulkar poverty line.
    • The Lakdawala Committee assumed that health and education is provided by the state — therefore, expenditure on these items was excluded from the consumption basket it proposed. Since expenditure on health and education rose significantly in the 1990s, the Tendulkar Committee included them in the basket. 

• Poverty numbers matter because central schemes like Antyodaya Anna Yojana (which provides subsidised food grains to households living below the poverty line) and Rashtriya Swasthya Bima Yojana (health insurance for BPL households) use the definition of poverty given by the NITI Aayog or the erstwhile Planning Commission. 
  • The Centre allocates funds for these schemes to states based on the numbers of their poor. Errors of exclusion can deprive eligible households of benefits.

Issues/Challenges related to Poverty alleviation

• Poverty alleviation has always been accepted as one of India’s main challenges by the policy makers, regardless of which government was in power.
  • Government policies have failed to address a majority of vulnerable people who are living on or just above the poverty line. 
• It also reveals that high growth alone is not sufficient to reduce poverty. 
  • Without the active participation of the poor, successful implementation of any programme is not possible.
• Progress in poverty alleviation has also been affected by shocks like demonetisation and the pandemic
  • The pandemic is the biggest setback to poverty reduction worldwide and it will stretch out targets for countries like India.

Issues related with usage of freebies for poverty alleviation

• The government launched the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) as a special relief scheme in April 2020 to distribute 25 kg cereals per family per month in addition to food transfers under the NFSA following the outbreak of Covid-19.
  •  Further extension of free food on top of the NFSA allocations will strain the fiscal deficit , reduce public investments and hamper potential job creation. 
• Highly inefficient grain management system.
  • As of April 1, the Food Corporation of India’s wheat and rice stocks stood at 74 MMT against a buffer stock norm of 21 MMT – there is, therefore, an “excess stock” of 53 MMT. 

• Massive leakages in the PDS. 
  • As per the High-Level Committee on restructuring FCI, leakages were more than 40 per cent based on the NSSO data of 2011.
    • Ground reports suggest that these leakages hover around 30 per cent or so today.

Governments initiatives in this context 

• Multi-pronged strategies are being taken by government to address rural poverty and improve the economic well-being of the people in rural areas with the main focus on increasing livelihood opportunities, empowering rural women, providing social safety net, skilling of rural youth, infrastructure development, increasing land productivity etc. through programmes of Department of Rural Development, viz., 
  • Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS)
  • Deendayal Antyodaya Yojana – National Rural Livelihoods Mission (DAY-NRLM)
  •  Deen Dayal Upadhyay – Gramin Kaushalya Yojana (DDU-GKY)
  • Pradhan Mantri Awaas Yojana – Gramin (PMAY-G)
  • Pradhan Mantri Gram Sadak Yojana (PMGSY)
  • Shyama Prasad Mukherjee National RuRBAN Mission (SPMRM) and National Social Assistance Programme (NSAP), and programmes of Department of Land Resources, viz., Watershed Development Component of Pradhan Mantri Krishi Sinchai Yojana (WDC-PMKSY).
• Other related schemes: 
  • Pradhan Mantri Jan Dhan Yojana
  • Schemes for Financial Assistance:
  • Pradhan Mantri Kisan Samman Nidhi
  • Pradhan Mantri Jan Dhan Yojana
  • Integrated Rural Development Programme (IRDP)
• The expansion of the Public Distribution System(PDS)during the pandemic has certainly contributed to reducing the misery of the poor who suffered through a sharp slowdown of the economy and the subsequent disruption in economic activity during the pandemic. 

Way Forward 

• It is said that it is better to teach a person how to catch a fish than to give him/her a free fish every day. 
• Vision of introducing the Antyodaya Anna Yojana (AAY)
  • It is more important to change the current policy of free food given the massive leakages in the PDS. 
    • In reforming this system of free food, wisdom lies in going back to former PM Atal Bihari Vajpayee’s vision of introducing the Antyodaya Anna Yojana (AAY), wherein, the “antyodaya” households (the most poor category) get more rations (35 kg per household) at a higher subsidy (rice, for instance, at Rs 3/kg and wheat at Rs2/kg). 
      • For the remaining below poverty line (BPL) families, the price charged was 50 per cent of the procurement price and for above poverty line families (APL), it was 90 per cent of the procurement price.
• Role technology 
  • There could be some problems in identifying the poor. 
    • However, technology can help overcome this difficulty. This will make PDS more targeted and lead to cost savings. 
• Usage of Saving 
  • The savings generated from reforms can be ploughed back as investments in agri-R&D, rural infrastructure (irrigation, roads, markets) and innovations that will help create more jobs and reduce poverty on a sustainable basis. 

• Strengthen the statistical system
  • It is important to strengthen the statistical system and make it independent of state interference. 

Given the controversy over poverty estimates, it is all the more important that the government conducts the CES at the earliest and decides the yardstick of measuring poverty.