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Extreme poverty eradicated from India

PMGKAY was critical in preventing any increase in extreme poverty levels in India and the doubling of food entitlements worked substantially in terms of absorbing the Covid-19 induced income shocks on the poor, an IMF paper notes

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Extreme poverty has been eradicated from India, with its prevalence being less than 1% since 2019, including in the period when the Covid-19 pandemic was at its menacing worst — according to the latest report released by International Monetary Fund (IMF). The paper titled “Pandemic, Poverty and Inequality: Evidence from India” has credited the successful implementation of the country’s food security programme — Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) — for averting the rise in extreme poverty.

“PMGKAY was critical in preventing any increase in extreme poverty levels in India and the doubling of food entitlements worked substantially in terms of absorbing the Covid-19 induced income shocks on the poor,” the paper noted as a resounding endorsement of Prime Minister Modi’s food security scheme. Last month, the prime minister had announced the extension of the PMGKAY scheme, to provide free food grains to those in need, until September this year.

The scheme had been launched around the first lockdown in 2020 when the country was stepping into the Covid-19 pandemic. The scheme has been getting extensions every now and then, and most recently, it was extended till March 2022. The announcement for the four-month extension (December 2021-March 2022) was made in November 2021.

The IMF paper says that extreme poverty — defined as less than purchasing power parity (PPP) of USD 1.9 per person per day — in India was as low as 0.8% in 2019 and it continued to be at that level even in the year when the pandemic hit, which in itself is a feat. Even as early as 2016-17, extreme poverty had reached a low 2% level. The low levels of extreme poverty in two consecutive years, including the pandemic year, can be considered the elimination of extreme poverty, the IMF has said.

The IMF paper added that the study demonstrates the social safety net provided by the expansion of India’s food subsidy program absorbed a major part of the pandemic shock. The programme provided insurance to the poor and prevented an increase in the prevalence of extreme poverty in India.
The paper presented estimates of poverty and inequality in India for each of the years from 2004-5 to 2020-21. For the first-ever time, the estimates took into account the effect of in-kind food subsidies on poverty and inequality.

A large part of the credit in maintaining the extreme poverty below one per cent even during the pandemic was given to the food transfers that maintained a stable low level of extreme poverty. Furthermore, post-food subsidy inequality is now at 0.294, which is now very close to its lowest level of 0.284 as was observed in 1993-94.

Even the economic setback in India because of the pandemic was a temporary income shock, and the temporary policy interventions were the fiscally appropriate way to absorb a large part of the shock, the paper noted. “Improved targeting of the policy combined with an expansion in the entitlements during the pandemic should de-facto absorb a part of the shock induced by the pandemic,” the IMF paper noted.

Hailing India’s in-kind food transfers (which the country has had since the early 1980s), the paper noted that these reduce the expenditure of households on items supplied free or at subsidized rates. The paper mentions that any poverty rate will always be overestimated by those who only relied on household consumption expenditure derived exclusively from surveys. To avoid this, it adds that any poverty estimation must incorporate the effects of in-kind transfers.

Authored by IMF executive director for India, Bangladesh, Sri Lanka and Bhutan Surjit S Bhalla, former chief economic adviser Arvind Virmani and economist Karan Bhasin, the paper notes that the food security programme in the country illustrates the robustness of India’s social safety architecture as it withstood one of the world’s biggest exogenous income shocks.

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