IMF WORKING PAPER

India was nearly free of extreme poverty in 2020 and inequality was the lowest in 40 years due to Narendra Modi Government’s free food distribution, says a working paper of the International Monetary Fund (IMF).

The paper, authored by Surjit Bhalla, IMF’s Executive Director for India, Arvind Virmani, former Chief Economic Advisor to the Government of India and Karan Bhasin, a policy researcher, analysed how the Modi Government’s food subsidy programme helped blunt the impact of the Covid-19 crises on the poor and also eased the poverty rate since its introduction.

Titled ‘Pandemic, Poverty, and Inequality: Evidence from India’, the paper disputes an earlier study by Pew Research Centre that claimed 75 million people were pushed into poverty in 2020 because of Covidled disruptions. According to the IMF paper, 15-25 million Indians were pushed into poverty during 2020-21 but the impact of that was offset by the free distribution of food items to 800 million people.

The rate of extreme poverty in India, which means those earning less than $1.9 per day on the PPP basis, was 4.1 per cent during 2020-21, against 2.2 per cent during the previous year, if food transfers by the Government aren’t taken into account. If food transfers are taken into consideration, extreme poverty rose a bit to 1.42 per cent in 2020-21, from 1.3 per cent a year ago. Though the IMF has clarified that the views expressed in the paper are of the authors and do not necessarily represent those of the multilateral agency, the findings of the study carry weight in view of the unimpeachable academic credentials of the authors.

The working paper used the consumer expenditure survey by the National Statistical Office (NSO) for its calculations. But the last such survey came in 2011-12. The latest survey of 2017-18 was junked by the Government. The authors used the real gross state domestic product (GSDP) growth rate to arrive at the poverty figures. The study is in sharp contrast to the one conducted by Pew Research Centre which was based on the URP method – that the IMF working paper dubbed “outdated”.

In the URP method, people are asked about their consumption expenditure over the past month alone. This method was discarded in India in 1999-2000.

From then until 2011-12, India used a mixed reference period (MRP). Under this, the data about less-frequently used items — health, education, clothing, durables — are collected over a one-year period, while sticking to the 30-day recall for the rest of the items.

The World Bank uses the modified mixed reference period (MMRP). The IMF working paper used the MMRP method. It defended its exercise of factoring in food subsidy for poverty estimation.

“Incorporation of the subsidy data allows us to conclude that pandemic support measures instituted by the government were critical in preventing any increase in the prevalence of extreme poverty,” it said. The authors noted that food subsidies have reduced poverty on a consistent basis since the enactment of the National Food Security Act, 2013, and the coincidental increase in the efficiency of targeting via the use of Aadhaar.

“Extreme poverty was as low as 0.8 per cent in the pre-pandemic year 2019, and food transfers were instrumental in ensuring that it remained at that low level in the pandemic year 2020,” the paper established. The IMF working paper for the first time measured the direct explicit effect of in-kind transfers and subsidies on poverty in India.

It has examined how the food subsidies under the National Food Security Act 2012 and the Pradhan Mantri Garib Kalyan Yojana, have impacted extreme poverty and inequality level during the COVID-19 pandemic.