A recently released paper by the International Monetary Fund (IMF) argues that the government’s food subsidy program, contrary to popular perception, has been successful in easing the impact of the Covid crisis on the very poor. The food program has also reduced ‘extreme poverty’ to negligible levels.
The paper – titled ‘Pandemic, Poverty and Inequality: Evidence from India’ – is authored by Surjit Bhalla, Executive Director, IMF for South Asia, and former member of the Prime Minister’s Economic Advisory Council; New York-based economist Karan Bhasin; and Arvind Virmani, former Chief Economic Adviser, Government of India.
Two of the three authors have worked for the Union government and have contributed to its economic policy-making. It is no surprise the paper’s position is close to the thinking of the Union government. It also appears the object of the paper is to question the widely quoted findings of the US ‘Pew Research Center, which had claimed that 75 million Indians had been pushed into poverty in the first Covid-19 wave in 2020.
The position of the IMF paper seems to be supported by the election results in Uttar Pradesh (UP), where one of the big factors that played in the BJP’s favor was the implementation of the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) during the pandemic from March 2020 to March 2022. Under the scheme, the Center provided 5 kg of free food grains to the poor.
There is however, a difference between ‘perception’ and ‘facts’. In desperate times during the pandemic, when joblessness and economic disruption was everywhere, a free dol of 5kg of wheat or rice is a significant safety net. Similar is the cash transfer of Rs 6,000 per year to poor farmers under the PM Kisan Samman Nidhi – in 3 installments of Rs 2,000 each. It’s a lifeline in bad times; and the ruling party has reaped a good electoral harvest. But in the long run, is this enough to ensure we have seen the back of poverty?
Cutback in outlays
If we examine the budget outlays, subsidies on food have been cut back. The pandemic is tapering off, and the bulk of the state elections would be over by March, so why commit scarce resources anymore? Perhaps, that’s how government thinking unraveled. The budget presented by the FM projected overall subsidies at Rs 3.18 lakh crore for FY2023, slashing more than a quarter of the revised budgetary estimate of Rs 4.33 lakh crore for FY 2022. Food bore the bulk of the cutback, though fertilizer was pared down by 25% and petroleum subsidies by 11%.
In the case of support for food, the government allocated Rs 2.06 lakh crore for FY23, which is 27% lower than Rs 2.86 lakh crore in the previous financial year; and if one compares it to 2020-21, when the allocation for food subsidy was Rs 5.41 lakh crore, the cutback is nearly 50%.
The Antyodaya Anna Yojna (AAY) – aimed at the poorest among those that live below the poverty line – are targeted for the bulk of the food subsidy. They are entitled to 35 kg of food grains at a heavily subsidized price of Rs 2 per kg for wheat and Rs 3 per kg for rice. National coverage was fixed at 67% of the population, split into 75% for rural and 50% for urban, with a ceiling of 60 million tonnes to be acquired and distributed by the Food Corporation of India (FCI).
Wider coverage needed
However, according to IndiaSpend.org, the coverage achieved in 2020 was only 59%, in contravention of the Nation Food Security Act target of 67%. Furthermore, the outdated 2011 census being the basis of determining the number of ration cards to be issued, has resulted in 100 million people being excluded from the public distribution system (PDS).
The pandemic, more than anything else, revealed that the demand for subsidized food was higher than government projections. With the additional free 5 kg food grain from March 2020, 94 million tonnes were distributed in 2020-21 and 80 MT in 2021-22.
PDS is also limited to wheat and rice, to the exclusion of other coarse grain and pulses. While some percentage of pulses are imported and cannot be included in the present charter, broadening the offering under PDS is a must for the very poor. Similarly, there is a serious problem of leakages.
An old paper on problems of the PDS by the think tank ICRIER estimated that the “existing PDS system has been highly ‘leaky’, with large amounts of grains being pilfered and diverted to the open market.” There is no alternative to the PDS to deliver food to the poorest. As much as 90% of below poverty line and Antyodaya families use their PDS quotas; on the other hand, undernutrition and malnutrition are most rampant among children of families not covered by PDS. The way forward obviously is to plug the ‘leakages’ and broaden its coverage to serve the poorest everywhere.