A count of India's poor: It's a challenge in absence of govt data

Estimating extreme poverty in the country becomes a controversial task, leads to differing estimates

The World Bank in October 2022 put out a report that said about 56 million Indians may have plunged into extreme poverty in 2020-21 as a result of the economic shock of the coronavirus, increasing the global tally by 71 million and making it the worst year for poverty reduction since World War II.

Last month, one year after that report, the World Bank significantly adjusted its estimates, suggesting that the number of people who fell into poverty in India in 2020-21 was approximately 29.5 million. This indicates a less severe impact of the pandemic on poverty than projected initially.

The pandemic's impact on poverty and inequality in India has been a contested issue in the absence of official government data. Estimating the impact is important for making policy, as many analysts say poverty in India has clawed back several years of progress.

While India is estimated to have made progress in improving welfare and reducing poverty in recent decades, extreme poverty (at $2.15 purchasing power parity, or PPP increased by two percentage points to 14.7 per cent in the pandemic year of 2020-21 and declined to 11.9 per cent in 2021-22. According to fresh estimates by the World Bank, in 2022-23, extreme poverty declined slightly to 11.3 per cent and remained above the pre-pandemic level of 12.73 per cent in 2018-19, signaling further decline may be challenging.

In the absence of Household Consumer Expenditure Survey data from the government since 2011-12, the World Bank used data from the Consumer Pyramids Household Survey (CPHS), conducted by the Centre for Monitoring Indian Economy (CMIE) to estimate poverty for India.

Meanwhile, in July this year, the Niti Aayog released the national multidimensional poverty index (MPI), capturing India's progress in reducing socioeconomic deprivation between two surveys, the National Family Health Survey-4 (2015-16) and NFHS-5 (2019-21). However, it clarified that the estimates may not fully assess the pandemic's effect on poverty, since more than 70 per cent of the data (NFHS-5) was collected before the disease's outbreak.

According to the Report, 135 million people escaped multidimensional poverty between 2015-16 and 2019-21. The country registered a significant decline in multidimensional poverty from 24.85 per cent in 2015-16 to 14.96 per cent in 2019-2021. The rural areas witnessed the fastest decline in poverty than urban India. However, the MPI, which measures simultaneous deprivations across the three dimensions of health and nutrition, education, and standard of living is criticised for including administrative indicators such as bank accounts, electricity connections trends for which are almost irreversible.

The poverty debate

The impact of India's economic reforms in the 1990s on poverty reduction was widely debated in the early 2000s. Nobel laureate Angus Deaton and economist Valerie Kozel called it as the 'The Great Indian Poverty Debate', noting that the various claims have often been political and there are important statistical issues. About 20 years later, 'The Great Indian Poverty Debate II' has been fuelled by lack of official household consumer expenditure survey data since 2011-12, which has forced economists to use proxies to estimate the extent of poverty reduction in the last decade, with wildly varied results. The debate has intensified recently with the pandemic-induced income shock believed to have reversed India's poverty reduction trajectory.

Pew Research Centre, in a report published in March 2021, claimed around 75 million people in India fell into extreme poverty in 2020 because of the economic recession induced by the pandemic. In sharp contrast, estimates published by Surjit Bhalla, Karan Bhasin and Arvind Virmani in April 2022 showed poverty rate remained virtually unchanged during the pandemic period at 0.9 per cent at $1.9 PPP due to the in kind transfers such as free foodgrains providing a social safety net against the pandemic shock.

Economists Arvind Panagariya and Vishal More, who used the Period Labor Force Survey (PLFS) data in March this year, concluded that on a quarterly basis, rural poverty saw a modest rise only during the strict lockdown quarter of April-June 2020 but fell below the pre-pandemic level soon after and continued to decline.

An IMF working paper published in July this year using CPHS and PLFS data concluded poverty increased drastically during the lockdown period, reaching more than four times of the 2019 average level based on the $1.9 PPP line. Poverty also increased during the second wave of the pandemic, but the situation improved toward the end of 2021, and as of fourth quarter of 2021, the number of people both under the $1.9 line was practically back to the pre-pandemic level.

Analysis of PLFS data by the authors showed that more than 50 per cent of casual workers lost their job in the second quarter of 2020. "Although the rate of job loss was significantly lower for regular wage and self-employed, many people did not work in the second quarter of 2020. Regular wage workers were more protected because some could continue to receive wages despite their absence from work, but that was not the case for self-employed and casual workers," it said.

Relief through targeted subsidies

Bhalla, as well as Panagariya, argued that the free distribution of additional 5 kg food grain and cash transfers arrested a sharper decline in poverty.

Almost concurrently with the strict lockdown, in April 2020, the government launched Prime Minister's Garib Kalyan Anna Yojana (PMGKAY) under which it provided 5 kg per person per month free food grain to 75 per cent of the rural households and 50 per cent of urban households). This was on top of the usual provision of 5 kg monthly food grains per person at highly subsidised prices under the National Food Security Act (NFSA) to the same population. The government was also quick to increase the allocations to the Mahatma Gandhi National Rural Employment Guarantee (MGNREGA) scheme thereby adding to the rural employment cushion. Expenditure on MGNREGA rose from Rs. 618 billion in fiscal year 2018-19 to Rs. 717 billion in 2019-20 and then to Rs. 1.1 trillion in 2020-21. The government also transferred Rs 500 each for three months to women Jan Dhan account holders during the pandemic.

The IMF paper, which didn't factor in the targeted benefits by the government, held that since the first wave of the pandemic led to a very sharp decline in income and consumption for most households, narrowing the support through income-based redistribution led to some households falling into poverty. "This highlights the fact that when faced with large shocks it is beneficial to provide support using schemes with broad coverage, and the authorities' response to the pandemic through increasing support through the food subsidy was important in reducing poverty," it said.

It advised the government ongoing efforts to improve targeting should continue. "Improving targeting can improve outcomes in terms of poverty reduction and enhance the effectiveness of public expenditure, which is crucial when fiscal space is limited," it said.

Prime Minister Narendra Modi on Saturday announced extending free rations under NFSA for five more years. While its political dividends will be tested in the ongoing assembly elections, it highlights the battle against poverty that lies ahead.