During Covid, free food helped rein in poverty in India: IMF paper

India has "eliminated low-income poverty (which is based the purchasing power parity or PPP of $1.9 per person a day)", the lead author of the paper said

The government's food subsidy programme has blunted the hit on the poor by the Covid-induced lockdowns and has successfully brought down the poverty rate since its introduction in 2013 barring the pandemic-affected 2020-21, finds a working paper of the International Monetary Fund (IMF). 

The paper, Pandemic, Poverty, and Inequality: Evidence from India, finds fault with the earlier study by the Pew Research Centre that 75 million people were pushed into poverty in 2020 due to Covid, saying it was based on the outdated methodology of the uniform reference period (URP). One of the authors of the study -- former chief economic advisor Arvind Virmani-- said 15 to 25 million people were pushed into poverty during 2020-21 but that was offset by free distribution of food to 800 million people.

The paper finds that extreme poverty in India, which means those earning less than $1.9 on the purchasing power parity (PPP) basis, rose to 4.1 per cent during 2020-21 compared to 2.2 per cent during the previous year if food transfers by the government are not taken into account. PPP value of a dollar is different from the market value. A dollar is currently valued at Rs 20.65 against Rs 15.55 in 2011. 

However, if the transfers are taken into consideration, extreme poverty rose a bit to 1.42 per cent from 1.3 per cent over this period. 

IMF clarified views expressed in the paper are of the authors -- Surjit Bhalla, the executive director for India at the Fund, Virmani and Karan Bhasin, a policy researcher-- and do not necessarily represent those of the multilateral agency. 

The poverty rate, which means those earning less than $ 3.2 on PPP basis, rose to 31 per cent from 23.3 per cent if food transfers are not taken into account and to 22.8 per cent from 19 per cent if these are factored in during 2020-21 from the previous year. 

The paper used the consumer expenditure survey by the national statistics office (NSO) for the calculations. However, the problem was that the last such survey came in 2011-12. The latest survey of 2017-18 was junked by the government.  The authors used the real state gross domestic product (SGDP) growth rate to arrive at the poverty figures. 

However, the paper also used real private final consumption expenditure growth on the consumer expenditure survey to arrive at growth as an alternative method.  

Using this methodology, it found that extreme poverty rose to 2.5 per cent during Covid-affected 2020-21 from 1.4 per cent in the previous year if food transfers are not taken into account. If the transfers are taken into account, extreme poverty rose to just 0.86 per cent from 0.76 per cent over this period. 

Poverty at less than $3.2 on PPP basis, rose to 26.5 per cent from 18.5 per cent over the period if food transfers are not factored into. If the transfers are taken into account, it rose to 18.1 per cent from 14.8 per cent over this period. 

However, Virmani said the poverty estimates on the basis of methodology using real SGDP growth are more accurate. 

The study is in sharp contrast to an earlier one by Pew Research Centre which showed that 75 million people in India were pushed into poverty in 2020 due to Covid-induced lockdowns. 

The IMF working paper said Pew's study used the outdated URP method. In URP, people are asked about their consumption expenditure over the last month alone. This method has been discarded in India from 1999 to 2000. From then till 2011-12, India used a mixed reference period (MRP). Under this, data on less-frequently used items -- health, education, clothing, durables -- are collected over a one-year period, while sticking to the 30-day recall for the rest of the items. 

However, the World Bank uses the modified mixed reference period (MMRP). In this method, for some food items, instead of a 30-day recall, only a 7-day recall is collected. Also, for some low-frequency items, instead of a 30-day recall, a 1-year recall is collected. 

The IMF study used the MMRP method. 

The study defended its exercise of factoring in food subsidy for poverty estimation. 

"The estimate solely on the basis of reported consumption expenditures will lead to an overestimation of poverty levels. Incorporation of the subsidy data allows us to conclude that pandemic support measures instituted by the government were critical in preventing any increase in the prevalence of extreme poverty," it said. 

The authors noted that food subsidies have reduced poverty on a consistent basis since the enactment of the Food Security Act in 2013 and the co-incidental increase in the efficiency of targeting via the use of Aadhaar.

The study said the low level of extreme poverty suggests that the official poverty line should now be $3.2 on a PPP basis. 

India is not coming out with a poverty line ever since the Narendra Modi government came into power at the Centre. 

Earlier, the erstwhile Planning Commission used to measure the number of the poor on the basis of the poverty line. According to one such report, 21.9 per cent of the population was poor in India in 2011-12 against 29.8 per cent in 2009-10. That report was based on the Suresh Tendulkar methodology. By that, those who spent more than Rs 33 a day in urban areas and Rs 27 in rural areas were not treated as poor. This had triggered a controversy.

Ultimately, the C Rangarajan-led panel came up with another report that said the number of the poor in India was much higher in 2011-12 at 29.5 per cent.

The report took a person spending less than Rs 47 a day in cities and one spending less than Rs 32 a day in villages as poor. This poverty line approach was abandoned by the NITI Aayog, which replaced the Planning Commission on January 1, 2015.