A recent IMF paper by Surjit Bhalla, Karan Bhasin and Arvind Virmani (Pandemic, poverty and inequality: Evidence from India) makes a persuasive point: that the numbers below the ‘extreme poverty’ line of $1.9 per day were contained at 0.9 per cent of the population (0.8 per cent in 2019) during the catastrophic pandemic year of 2020. This, they say, was largely on account of the enhanced food transfers that began that year. The paper monetises this subsidy and includes this in consumption expenditure, extrapolating from estimates made in the 2011-12 NSS household consumer expenditure survey. It rejects like the Centre did, the 2017-18 expenditure survey that points to a drop in consumption in the intervening years, on grounds of data quality. With its findings, it has also questioned the conventional wisdom so far (highlighted by Pew Research and others) that the pandemic has pushed India’s really poor to the brink. Bhalla et al argue that these studies make two mistakes: first, they underestimate consumption expenditure through a methodological error; and second, they ignore the value of the food transfers. If food transfers are not taken into account, extreme poverty, they say, would seem to have increased by more than one percentage point, from 1.4 per cent in 2019 to 2.5 per cent in 2020.

Interestingly, the paper concedes that if a poverty level of $3.2 per day is used as a benchmark, the percentage of the poor is up from 25.5 per cent to 29.9 per cent, even if food transfers are taken into account. This is a far more telling indicator of the impact of the pandemic, and is in line with accounts of distress in the informal sector. The paper’s view that the $1.9 metric should be discarded for India is a reasonable one, as $3.2 is a more realistic level for an economy that is growing rapidly. Its conclusion that expenditure based inequality has declined due to these transfers is hard to accept. It goes against recent studies on inequality pointing the other way, borne out by consumption patterns and wealth indices.

The paper is significant in policy terms. It argues for the effectiveness of food over cash transfers in combating economic shocks. In India, a combination of the two, the latter in the form of Jan Dhan transfers and PM Kisan, has made a difference. However, a few questions remain unanswered. Should a 10 kg per capita provision of free grain be continued even in normal times to keep extreme poverty at bay? This is unsustainable. A transfer of close to 100 million tonnes of rice and wheat will mean keeping up extraordinary levels of procurement and holding large stocks at high cost, putting paid to one of the central points of agricultural reform — of bringing about crop diversification. It would be advisable to revert to providing 5 kg free under the National Food Security Act, while not holding more than 60 million tonnes of stock. This can be supplemented through cash transfers or food coupons. The use of an income-based poverty line may be convenient for international comparisons, but is woefully narrow. The NITI Aayog’s multi-dimensional index of deprivation, which includes access to a host of essential services, is a more dignified metric for an aspirational economy.

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