Context

The release of two new working papers, one from the World Bank and the other from the IMF, has led to a renewed debate on poverty in India.

A substantial decline in extreme poverty in India

• Both papers 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.
• 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.
• Another estimate of poverty by the NITI Aayog, the multi-dimensional poverty index (MPI), has put Indian poverty at 25 per cent in 2015 based on NFHS data.
• How MPI is calculated?: This MPI is calculated using twelve key components from areas such as health and nutrition, education and standard of living.

How much should be the coverage under NFSA, 2013?

• The offtake of grains under NFSA in FY20 was 56.1 million metric tonnes (MMT).
• Following the outbreak of Covid-19, the government launched the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) in April 2020 to distribute 25 kg cereals per family per month in addition to food transfers under the NFSA.
•  That catapulted the offtake to 87.5 MMT (under PMGKAY and NFSA) in FY21.
• The scheme continued in FY22, and the grain offtake touched 93.2 MMT. 

Issues with the wide coverage

• A further extension of free food on top of the NFSA allocations was uncalled for.
• This will strain the fisc, reduce public investments and hamper potential job creation.
• A look at the size of food freebies will help understand the gravity of this problem.
• 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. 
• The cost of excess stock: The economic cost of rice, as given by FCI, is Rs 3,7267.6/tonne and that of wheat is Rs 2,6838.4/tonne (2020/21).
• The value of “excess stocks”, beyond the buffer norm, is, therefore, Rs 1.85 lakh crore — this, despite a total of 72.2 MMT grains distributed for free under the PMGKAY in FY21 and FY22.
• Ballooning food subsidy: All this results in a ballooning food subsidy for FY 23, it is provisioned at Rs 2.06 lakh crore, for FY 23, it is provisioned at Rs 2.06 lakh crore.
• But this amount is likely to go beyond Rs 2.8 lakh crore with the continuing distribution of free food under the PMGKAY.
• This would amount to more than 10 per cent of the Centre’s net tax revenue (after deducting the states’ share).

Way forward

• It is all the more important to change the current policy of free food given the 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.
• Make PDS more targeted: In reforming this system of free food, wisdom lies in going back to the Antyodaya Anna Yojana (AAY).
• Under AAy, 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.
•  This will make PDS more targeted and lead to cost savings.
• Use of technology: There could be some problems in identifying the poor. However, technology can help overcome this difficulty.
• Option of cash transfer: This measure should be combined with giving people the option of receiving cash instead of providing grains to targeted beneficiaries.
• The savings so generated from this reform 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.

Conclusion

The government needs to bite the bullet and emulate the Vajpayee  government (which had introduced AAY) in using scarce resources more wisely.

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