Policy Watch: Has India accelerated or decelerated poverty reduction?
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Has the Indian government accelerated or decelerated poverty reduction? It’s hard to know, as India has effectively stopped measuring poverty. This week, we raid the archives for our Policy Watch - our analysis was ‘Members only’ last year, but now we’re pleased to share it more widely.
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Policy Watch: Has the Indian government accelerated or decelerated poverty reduction?
A recent World Bank paper says the share of people living below $1.90 per day has been falling, at about 10%. An IMF paper says India has (almost) fully eradicated extreme poverty. This Policy Watch focuses on the latter paper, which is written by the Indian government's representative at the IMF Surjit Bhalla (and others):
For the first time in several decades extreme poverty (those falling below the $1.9 PPP 2011 dollars per person per day) in the world increased in the pandemic year 2020. A recent paper from the IMF examines the magnitude of India’s contribution, if any, to this world increase in extreme poverty.
The authors say, none of the existing poverty estimates incorporate the effect of fiscal interventions such as those that became necessary to alleviate the worst effects of the pandemic on the poor (interventions like food subsidies and subsidised loans to the self-employed). Their study documents the poverty and distributional consequences of the pandemic support measures announced by the Indian government. The estimation of poverty including in-kind subsidies is one of the primary objectives of their paper.
The effect of the subsidy adjustments on poverty is striking. Real inequality, as measured by the Gini coefficient (0 is perfect equality, 1 is perfect inequality), has declined to near its lowest level reached in the last forty years – from 0.284 (1993/94) to 0.292 (2020-21). Possibly the more surprising result from the incorporation of food subsidies into the calculation of poverty is that extreme poverty has stayed below (or equal to) 1 % for the last three years. In the pandemic year 2020-21 extreme poverty was at its lowest level ever – 0.8 % of the population.
The paper however doesn’t necessary deal with leakages from the system i.e. it assumes Public Distribution System (PDS) transfers were 100% effective at reaching where they were supposed to reach.
[For example, in the UK, the Bounceback Loans scheme had significant leakage, where the government has admitted it effectively lost several £billions, and the Eat Out To Help Out scheme probably had a significant adverse impact but increasing the spread of Covid.]
The paper also relies on official Indian government data, which might exaggerate true poverty reduction. Equally, Arvind Subramanian has made the case (and here) that the government began, inadvertently at first but thereafter systematically, to overstate GDP growth after 2011 (pre-Modi).
There are other problems too in taking the paper entirely at face value. In 2018, India’s National Statistical Commission recommended a backward revision of GDP that would have raised the growth rate from 2004-05 to 2011-12 a little. But then NITI published a new backcast GDP series revised in the opposite direction, implying GDP growth pre-2011 was more than a full percentage point lower (and therefore making the Modi era look comparatively better).
Economics isn’t an exact science, but on balance the government’s welfarism did significantly help less fortunate parts of society, even if that may not be as much as the IMF paper suggests.
Source: Pandemic, Poverty, and Inequality: Evidence from India, IMF Working Paper, Surjit Bhalla, Karan Bhasin, Arvind Virmani, April 5, 2022; Centre for Global Development.
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