IMF working paper: India’s food subsidy programme kept extreme poverty at bay in pandemic-hit 2020

*Paromita Das

According to an International Monetary Fund working paper, the Pradhan Mantri Garib Kalyan Yojana (PMGKAY), which provides free food grains to poor people, played a key role in keeping extreme poverty in India at 0.8% during the pandemic-hit 2020. (IMF).

The working paper titled ‘Pandemic, Poverty, and Inequality: Evidence from India’ provides estimates of poverty and consumption inequality in India from 2004-5 to the pandemic year 2020-21.
“Extreme poverty was as low as 0.8% in the pre-pandemic year 2019, and food transfers were critical in ensuring that it remained at that low level in the pandemic year 2020,” the report stated.

The central government provides 5 kilogrammes of food grains per month for free under PMGKAY, which was launched in March 2020. The additional free grain is in addition to the normal quota provided by the National Food Security Act (NFSA) and is available at a heavily subsidised rate of Rs 2-3 per kilogramme. PMGKAY’s license has been extended until September 2022.
According to the working paper, which was prepared by Surjit S Bhalla, Karan Bhasin, and Arvind Virmani, extreme poverty was at its lowest level ever in the pandemic year 2020-21, at 0.8% of the population.

“Furthermore, as early as 2016-17, extreme poverty had reached a low of 2%.” Poverty in India was 14.8% in the pre-pandemic year 2019-20, according to the more appropriate but 68% higher Low Middle Income (LMI) poverty line of PPP (purchasing power parity) USD 3.2 per day.

“This achievement is put into context by noting that the official poverty level for the lower PPP USD 1.9 line was 12.2 percent in 2011-12,” it said.
According to the working paper, extreme poverty (those earning less than USD 1.9 per person per day in purchasing power parity) increased in the world in the pandemic year 2020 for the first time in several decades.

According to the working paper, the government’s pandemic support measures were critical in preventing an increase in the prevalence of extreme poverty, and food subsidies have consistently reduced poverty since the enactment of the FSA in 2013 and the co-incidental increase in the efficiency of targeting via Aadhaar.

It also stated that the effect of the subsidy adjustments on poverty is striking.
“Real inequality, as measured by the Gini coefficient, has fallen to near its lowest level in the last forty years: it was 0.284 in 1993-94 and 0.292 in 2020-21.”

“Perhaps the most surprising result of incorporating food subsidies into the calculation of poverty is that extreme poverty has remained below (or equal to) 1% for the last three years,” the report said.

The working paper stated that post-food subsidy inequality, at 0.294, is now very close to its lowest level of 0.284 observed in 1993-94, and that in 2020, for the first time since the PDS system’s inception, the government would supply the basic food ration to the bottom two-thirds of the population in full.
During the pandemic, food support (rations) were increased – the food grain ration was doubled for each recipient from 5 kg of wheat (or rice) per month to 10 kilogrammes in 2020, it added.

The paper’s author noted that one important implication of their findings is that extreme poverty has been virtually eliminated, and that both the Indian government and the World Bank should formally switch to the LMI country’s poverty line of USD 3.2 PPP.

They also found that the social safety net provided by the expansion of India’s food subsidy programme absorbed a significant portion of the pandemic shock.