A grainy picture: Tough to measure Covid's impact on poverty without data

In October 2022, the World Bank put out a report saying nearly 56 million Indians might have plunged into extreme poverty in 2020-21 as a result of the economic shock induced by the Covid-19 pandemic, increasing the global tally by 71 million and making it the worst year for poverty reduction since World War II.

Last month, a year since that report came out, the Bank significantly adjust­ed its estimates, suggesting that the number of people who fell into poverty in India in 2020-21 was approximately 29.5 million. This indicates a less severe impact of the pandemic on poverty than initially projected.

The impact of the pandemic on pov­erty and inequality in India has been a contested issue in the absence of govern­ment data. Estimation of the Covid impact on poverty is crucial for policy formulation as many analysts believe an increase in poverty in India has undone several years of progress on this front.
 

Though India is estimated to have made remarkable progress improving welfare and reducing poverty rates in recent decades, extreme poverty (at $2.15 purchasing power parity) increased by two percentage points to 14.7 per cent in the pandemic year of 2020-21 before declining to 11.9 per cent in 2021-22. According to fresh estimates by the World Bank, extreme poverty further declined to 11.3 per cent in 2022-23, but that was still above the pre-pandemic level of 11.09 per cent recorded in 2018-19. It was a signal that further decline could be a challenge.
 

In the absence of Household Consumer Expenditure Survey data from the government after 2011-12, the multilateral lending institution used data from the Consumer Pyramids Household Survey (CPHS) conducted by the Centre for Monitoring Indian Economy to estimate poverty for India.
 

Meanwhile, in July this year, the NITI Aayog released the National Multi­dim­ensional Poverty Index (MPI), capturing India’s progress in reducing socio-economic deprivation between the two surveys, National Family Health Survey-4 (2015-16) and NFHS-5 (2019-21). How­ever, it clarified that the poverty estima­tes may not fully assess the effects of the Covid-19 pandemic on poverty, since more than 70 per cent of the data (NFHS-5) was collected before the pandemic.
 

According to the report, between 2015-16 and 2019-21, 135 million people escaped multidimensional poverty, which during these five years declined from 24.85 per cent to 14.96 per cent. Rural areas witnessed a faster decline in poverty than urban areas. However, the MPI, which measures simultaneous dep­rivations across the three dimensions of health and nutrition, education, and sta­ndard of living, is criticised for inclu­ding administrative indicators such as bank accounts and electricity connect­ions, trends for which are almost irreversible.

 

The great poverty debate

The impact of India's economic reforms of the 1990s on poverty reduction was widely debated in the early 2000s. Nobel Laureate Angus Deaton and economist Valerie Kozel christened it “The Great Indian Poverty Debate”, noting that 

the claims had often been frankly political, but there were also important statistical issues.

About 20 years later, “The Great Ind­ian Poverty Debate II” has been fuelled by the lack of official household consu­mer expenditure survey data for the last 11 years, which has forced economists to use proxies to estimate the extent of pov­erty reduction in the last decade, with wildly varied results. The debate intensi­fied recently with the pandemic-induced income shock believed to have reversed India’s poverty reduction trajectory.
 

Pew Research Centre, in a report published in March, 2021, claimed around 75 million people in India fell into extreme poverty in 2020 because of the pandemic. In contrast, estimates publis­hed by Surjit Bhalla, Karan Bhasin and Arvind Virmani in April 2022 showed the poverty rate remained virtually unchanged during the pandemic period, at 0.9 per cent (at $1.9 PPP) due to the in-kind transfers, such as free food grains, providing a social safety net.
 

Economists Arvind Panagariya and Vishal More, using the Period Labour Force Survey (PLFS) data in March this year concluded that on the quarterly basis, rural poverty saw a modest rise only during the strict lockdown quarter of April-June 2020, but fell below the pre-Covid level soon after, and continued to decline.

An International Monetary Fund (IMF) working paper, published in July this year and using CPHS and PLFS data, concluded poverty increased drastically during the lockdown period, reaching more than four times of the 2019 average level based on the $1.9 PPP line. Poverty also increased during the second wave of the pandemic, but the situation improved toward the end of 2021, and, as of the fourth quarter of 2021, the number of people under the $1.9 line was practically back to the pre-pandemic level.

Analysis of PLFS data by the authors showed that more than 50 per cent of casual workers lost their jobs in the second quarter of 2020. “Although the rate of job loss was significantly lower for regular wage and self-employed, many people did not work in the second quarter of 2020. Regular wage workers were more protected because some could continue to receive wages despite their absence from work, but that was not the case for self-employed and casual workers,” it said.
 

Relief through targeted subsidies
 

Both Bhalla as well as Panagariya argued that the free distribution of an additional 5 kg food grains and cash transfers arrested a sharper decline in poverty.
 

Almost concurrently with the strict lockdown, in April 2020, the government launched Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), which provided 5 kg of free food grains per person per month to 75 per cent of the rural and 

50 per cent of urban households. This was on top of the usual provision of 5 kg monthly food grains per person at highly subsidised prices under the National Food Security Act (NFSA) to the same population.
 

The government was also quick to increase the allocations under the Mahatma Gandhi National Rural Employment Guarantee (MGNREGA) scheme, adding to the rural employment cushion. The expenditure on MGNREGA rose from Rs 618 billion in 2018-19 to Rs 717 billion in 2019-20, and further to Rs 1.1 trillion in 2020-21. The government also transferred Rs 500 each for three months to women Jan Dhan account holders during the pandemic.
 

The IMF working paper, which did not factor in the targeted benefits by the government, held that since the first wave of the pandemic led to a very sharp decline in income and consumption for most households, narrowing the support through income-based redistribution led to some households falling into poverty. “This highlights the fact that when faced with large shocks it is bene­ficial to provide support using schemes with broad coverage and the authorities’ response to the pandemic through increasing support through the food subsidy was important in reducing poverty,” 

it said.
 

It advised the government that ongoing efforts to improve targeting should continue. “Improving targeting can improve outcomes in terms of poverty reduction and enhance the effectiveness of public expenditure, which is crucial when 

fiscal space is limited,” it said.
 

Prime Minister Narendra Modi on Saturday announced extension of the ongoing free ration under NFSA to continue for the next five years. Though its political dividends will be tested in the ongoing Assembly elections, it highlights the tough battle against poverty that lies ahead.