Context

• A recent World Bank report, titled “Correcting Course”, captures the impact of the COVID-19 pandemic on global poverty. The economic mismanagement we were witness to in India resulted in 5.6 crore people slipping into extreme poverty in 2020.

Do You Know?

• 17 October is observed as International Day for the Eradication of Poverty
• The theme for International Day for the Eradication of Poverty 2022-2023 is “Dignity For All in Practice: The commitments we make together for social justice, peace, and the planet”

What is the Impact of COVID-19?

• Rapid rise in extreme poverty: The number of people living in extreme poverty rose by seven crores million in 2020, as the global poverty rate rose from 8.4% in 2019 to 9.3%in 2020.
• Increased Inequality: This is the first time in two decades that the poverty rate has gone up. 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.

What the World Bank report says on fiscal policy of developing Nations?

• The report focuses on fiscal policy as an instrument for governments in dealing with crises such as the pandemic.
• 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.

What is the status of India’s Fiscal Policy and Poverty?

• Sluggish state of Indian Economy: India’s economy continues to be sluggish in 2022, and one should look back at the policy choices that were made back in 2020.
• Absence of official poverty data: 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.
• Poverty and fall in GDP: By the estimate, 5.6 crore people are likely to have slipped into poverty as India’s GDP fell by7.5% in FY2020-21.
• India’s Population below poverty line: The population below poverty line in India stood at 10% in 2020.
• Marginal Incremental spending: Refusal to provide a fiscal stimulus to consumption the Government announced a fiscal stimulus worth Rs.2 lakh crore, or 1% of GDP. However, only a small fraction therein reflected incremental spending.
• Inadequate increase in MGNREGA wage: The minor increase to the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) wage by Rs.20 per day was a long-pending correction and quite inadequate to say the least.
• No money in the hands of households: The majority of India’s stimulus package took the form of credit lines and refinancing schemes to private enterprises, which are an inefficient mechanism to realise the goal of putting money in the hands of people to boost household-level consumption.

The relationship between India’s Tax policies and Poverty

• Reduced corporate tax: Through the pandemic and beyond, 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 Rs.1.84 lakh crore over the last two fiscal years, according to the Parliamentary Committee on Estimates.
• Rise in corporate profit: India has refused to reintroduce wealth tax, or indeed, an inheritance tax. At the same time, corporate profits soared, as reported by the CMIE.
• Rise in inequality: Through all of this, and in spite of the World Inequality Report terming India as a ‘poor and very unequal country’.
• GST as regressive tax regime: 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.

Food aid through PMGKAY and the problem associated with it

• Pradhan Mantri Garib Kalyan Ann Yojana: The announcement of 80-crore people in India would get food aid through the Pradhan Mantri Garib Kalyan Ann Yojana (PMGKAY), a scheme that continues mainly because of the undeniable household-level distress. PMGKAY is currently estimated to cost about Rs.3.90 lakh crore. Started in April 2020, it has been extended till the upcoming Assembly elections are over.
• PMGKAY is not a long-term solution: food aid is not a long-term solution, and certainly does not solve the problem of chronic malnutrition.

World Bank Suggested priorities for Post pandemic recovery

• The World Bank report identifies three priorities for fiscal policy for governments to aid with post-pandemic recovery:

1. Targeted subsidies that benefit the poor

2. Public investment to build resilience in the long term;

3. Revenue mobilisation that should rely on progressive direct taxation rather than indirect taxes

Conclusion

• India’s fiscally prudent policies had ensured the wealthy state but poor people. However, we must not see India’s story in isolation. Despite the good fiscal packages developed country like UK, USA are heading towards recession. Though sluggish, India has done well to maintain positive growth trajectory but this positive growth must include the growth of the poor as well.

Mains Question

Q.How fiscal policy can impact the poverty? What are the government initiatives to uplift the poor?

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