Budget 2023: Topmost priority to lift 81 crore out of poverty

The Union Cabinet’s decision of December 23, 2022 that the “Central government will provide free foodgrains to about 81.35 crore beneficiaries” under the National Food Security Act (NFSA) of 2013 for a year from January 1, 2023, implies that India has as many (813.5 million) poor who need to be fed for “free”. Since the NFSA provides for “subsidised” ration for 62.5% households – 75% of rural and 50% of urban households – the official poverty count then stands at 62.5%.

There is enough evidence that poverty is rapidly rising.

A 2019 ‘leaked’ report of the National Statistical Office (NSO) had shown that the poverty reduction trend reversed during 2011-12 and 2017-18, with the ‘real’ monthly per capita consumption expenditure (MPCE) falling by 3.7% to ₹,446 in 2017-18, from ₹1,501 in 2011-12, for the first time in 40 years. Another NSO report of the time, the Periodic Labour Force Survey (PLFS) of 2017-18, had shown the unemployment rate (UR) had touched 45-year high of 6.1% and India had lost 9 million jobs during the same period, 2011-12 to 2017-18, “for the first time in India’s history”. The PLFS report was made public after the 2019 General Elections.

But the 2017-18 MPCE survey report was withheld, questioning the credibility of its data. PC Mohanan, the then acting chairman of the National Statistical Commission (NSC), told Fortune India that this had never happened until then “to the best of my knowledge”. The NSC was an autonomous and apex body of the statistical system and the final authority to approve these reports until then. Mohanan and the last remaining NSC member JV Meenakshi had resigned in protest against the undermining of the apex institution (NSC). The government’s stand was challenged and rejected by the NSC officials, its Chief Economic Advisor (CEA) and leading global economists – all with domain expertise, unlike the politicians and bureaucrats who shot down the PMCE report.

The growing poverty was confirmed by the NITI Aayog’s 2020 report “SDG India - Index & Dashboard 2019-20” too. It showed that of 28 states/UTs it mapped, poverty went up in 22, hunger in 24 and income inequality in 25 states/UTs. Its next report of 2021 (for FY21) however, completely reversed the trend by saying that poverty fell in 25, hunger in 23 and income inequality in 13 of those very 28 states/UTs. It didn’t explain how the miracle happened amidst the stringent national lockdown which led to (i) massive and overnight loss of jobs and businesses (ii) massive reverse distress migration of workers on foot and (iii) the GDP growth plunged to -6.6%, more than double the global average of -3.1%.

Since then, no further MPCE survey has been undertaken. Meanwhile, a World Bank report of 2022 said India added a whopping 79% or 56 million of new “extreme poor” (per capita per day expenditure of $2.15 at 2017 PPP) to the global addition of 71 million in 2020 (first pandemic year).

Poverty was very high even before the pandemic. The UNDP-Oxford University’s report of October 2022, Global Multidimensional Poverty Index (MPI) 2022, said India had “by far the largest number of poor people worldwide (228.9 million), followed by Nigeria (96.7 million projected in 2020)”. The MPI report measures multiple deprivations in health, education and living standards (per capita per day expenditure of $1.9 at 2011 PPP) for this assessment.

The World Bank database shows Indians are one of the poorest in the world. Its per capita income of $2,777 (current USD) is substantially lower than the global average of $12,263. Even in PPP terms (2017 USD), India’s $7,333.5 is way below the global average of $18,721.6 (all data for 2021).

Even the GDP data (which is not appropriate as it includes non-household incomes also) couldn’t hide how the pandemic impoverished Indians. While the GDP grew at 8.7% in FY22, thus becoming the fastest growing major economy, the per capita GDP was 0.53% lower (negative) than the pre-pandemic FY20 (at constant prices). The FY20 growth was not great – it was 3.7%.

Is “free” ration mere politics?

There is criticism that “free” ration is more about politics, driven by electoral considerations. The “free” PDS has built up a “labharthi” vote bank and it helped in beating the anti-incumbency in four of the five states in early 2022 elections – as the two most credible post-poll surveys by the Lokniti-CSDS and Axis My India has shown. Several small and big states in which the BJP has a big stake are going to polls in 2023 – from Karnataka, Nagaland, Meghalaya and Tripura in the early parts to Rajasthan, Madhya Pradesh and Chhattisgarh in the later part. The UTs of Jammu, Kashmir and Ladakh are more likely to find a place.

Hence, it is more likely that the scheme would extend well into 2024 when the general elections are due (in April-May).

There is an additional benefit for the BJP-run central government. By declaring that the entire cost of “free” ration would be borne by the central government, state governments have lost their “political play” in further subsidising the ration or making it free on their own. In the existing scheme under the NFSA, the Centre charges ₹3 per kg for rice, ₹2 per kg for wheat and ₹1 per kg for coarse grains. States pay a part or full amount to further subsidise or make the ration completely free. The list of such states is long: Andhra Pradesh, Telangana, Madhya Pradesh, Chhattisgarh, Karnataka, Kerala, Odisha, Tamil Nadu, West Bengal etc. Now that the entire credit will go to the BJP-led central government, states would be completely deprived of their play in the electoral field as far as ration is concerned.

Many question the fiscal prudence of giving “free” ration to such a large population, 62.5% or 813.5 million, which would cost the exchequer “more than ₹2 lakh crore”.

Be as that may, is “free” ration for 62.5% entirely undeserving?

Most Indians have been getting “free” ration in any case (states subsidised it further). The pandemic had seen “free” ration of equal amount (5 kg grains per head) under the PMGKAY, from April 2020 to December 2022. This is over and above the NFSA entitlement – which ends on December 31, 2022.

More importantly, must India persist with a growth model, and not junk it immediately? Or should it opt for a growth model that would make “free” ration to 62.5% population redundant?

What should India do now?

The first step to address the massive challenge of poverty is to acknowledge that it exists. This would bring the realisation that the GDP growth was not helping the poor and the poverty alleviation programmes, SDG goals etc. have not met their objectives.

Then comes collection of relevant data to assess the magnitude of the challenge, formulate policy responses, prepare a plan or multiple plans, devise strategies and put in place a well-defined roadmap to achieve the objective.

The government stopped counting poverty long back. It no longer has an official poverty line or poverty estimate. The existing one is that of Tendulkar’s framed in 2009. An official document of 2020 reveals that the Tendulkar’s group “did not construct a poverty line” but “adopted the officially measured urban poverty line of 2004-05 (25.7%) based on Expert Group (Lakdawala) methodology”. As per the 2004-05 estimates, the poverty line was then set at ₹26 and ₹32 a day (per capita) for rural and urban areas, respectively for 2011-12. This translates to the national poverty line of ₹816 per capita per month for rural areas and ₹1,000 per capita per month for urban areas.

In 2014, the Rangarajan Committee revised the poverty line up – to ₹972 in rural and ₹1,407 in urban areas and (per month) – and estimated poverty at 29.5%. This was never accepted by the government.

The government has not taken up another MPCE survey – the right one to measure household poverty level, since per capita GDP also includes incomes/profits of corporate entities, high net worth individuals and other non-households.

The NITI Aayog’s poverty estimates are deeply flawed, as explained earlier.

The job data (PLFS reports from 2017-18 to 2020-21) too are highly questionable. These reports show consistent improvements in all employment indicators – WPR, LFPR and UR – during a period when the economy was reeling under (a) the twin shocks of demonetisation and GST in FY17 and FY18 and (b) then the pandemic hit in FY21 – all caused loss of job and businesses. It has no urban wage data and its rural wage data reflects a prolonged rural crisis with stagnated or negative growth for many years running. The imperatives are clear.