Time to raise the poverty line in India

This requirement for a higher poverty level shouldn’t come as a surprise to anyone. In India, the growth of per capita GDP averaged 3.5 percent year between 1983 and 2003. When the head count ratio (HCR) hit 27.5 percent in 2004, the official poverty limit was lifted by 18 percent. The HCR reached the low teens in 2011–12 as a combination of the HCR’s rapid increase (5.3 percent annually) and a better technique of measuring consumption (the modified mixed recall period (MMRP) rather than the Uniform Recall Period (URP)). Bhalla (2010) claimed that the poverty threshold should have been increased at the time. As they get wealthier, most nations transition from the idea of absolute poverty to that of relative poverty, and India should do the same.

Subject to some disagreement, relative poverty is typically defined as having an HCR level of between 25% and 30% of the population. The $1.90 poverty limit was therefore already excessively low in 2011–12 and is already very low.

Since 2004, the HCR of those living below the $1.90 poverty line has sharply decreased, dropping from around a third of the population in 2004 to less than 1.5 percent in 2019. These figures are lower than those in the most popular source, the Povcal database of the World Bank, since Povcal does not account for the adoption of a deceptive uniform recall period or the distribution of food subsidies.

Our findings indicate that in the year before the pandemic, 2019, severe poverty was already below 1%, and despite India experiencing a large economic slowdown in 2020, we think the impact on poverty was minimal. This is due to the fact that we assess poverty (HCR) after accounting for the advantages of in-kind food (wheat and rice) subsidies for almost 800 million people (75 percent of rural and 50 percent of urban residents). The typical subsidy user received a sizeable amount of food assistance, which increased to about 14 percent of the poverty level in 2020 (Figure 2). Even in the epidemic year of 2020, this was enough to prevent the poverty rate from rising.

Figure 2. Food subsidies contained any increases in poverty

A noteworthy aspect of the pandemic response was the free distribution of an additional 5 kilos of wheat or rice plus 1 kilogramme of pulses per person each month under the Pradhan Mantri Garib Kalyan Yojana (PMGKY) programme. This was in addition to the current food assistance of 5 kg of rice or wheat at subsidised rates per capita each month. Thus, the total amount of subsidised food grain in 2020 came to 10 kg, which is the average amount of food (wheat and rice) consumed per person in India during the past three decades.

The increased food assistance was a pandemic-focused approach. We speculate that a cross-country comparison research may demonstrate that this policy solution was conceivably the most successful worldwide. Therefore, individual nations and international organisations concerned with efficient income allocation may learn from the Indian example.

In the past, the main justification for switching from in-kind food transfers to cash transfers was to eliminate leakages. However, our findings show that leakages have significantly decreased over the past ten years, even in the in-kind food transfer programme. In actuality, the recent food distribution programme was an extremely effective intervention, particularly during the pandemic when supply chains were rupturing and there was more uncertainty. Cash transfers often preserve roughly the same allocative results as food transfers, and they are also likely to be more effective under normal conditions. Therefore, the current topic of discussion should be the efficiency trade-offs related to using cash or in-kind transfers as the primary tool for reducing poverty.

Given the improvement in transfer targeting, these discussions are important and compatible with emerging nations’ goals of creating cutting-edge social security systems.

When all the data is taken into account, our research has come to the firm conclusion that Indian policy has successfully achieved both growth and inclusion and has fundamentally adhered to the Rawlsian maximin principle — maximizing the welfare of the poorest — in a fundamental way.

Related posts:

Part of an ongoing series of learning creative coding in pure javascript. See more here. And get the files here. There are a bunch of techniques and libraries out there for to detect and play with…

It is okay to have a dilemma regarding the laptop selection, you are not alone. Almost everyone faces the situation. Here is a guide to best laptop buy.

My reflection series continues with a gift from winter. This reflection arose out of a recent haiku I wrote about winter’s calling (see below for a link). The reflections here are multidimensional…