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#India – Effective PDS lifted 38 million people out of poverty in 2009-10

Case for food security: Effective implementation by states has helped pull millions out of poverty

By , ET Bureau | 10 Nov, 2013,
​New research argues that the public distribution system lifted 38 million people out of poverty in 2009-10. And it’s getting better. Don’t thank the UPA, though.
​New research argues that the public distribution system lifted 38 million people out of poverty in 2009-10. And it’s getting better. Don’t thank the , though.

In the vociferous debate around the food security bill, critics seemingly had evidence and history on their side. The public distribution system (PDS) has for long been seen in policy circles as a kind of budgetary black hole, sucking in enormous resources and giving back very little in return, in terms of poverty reduction or better nutrition.

Critics charged that the implementation of the food bill, with its legal guarantee of minimum levels of food for a large mass of the population, would only lead to an increase in food subsidy, currently pegged at Rs 90,000 crore for 2013-14. The conclusion: more taxpayer money will go down the drain. Now new research argues that the population pulled out of poverty in the last decade, thanks to PDS, has actually increased sharply. The research, by Himanshu, an associate professor atJawaharlal Nehru University, and Abhijit Sen, member of the Planning Commission, is due to be published in the Economic and Political Weekly.

In 1993-94, there would have been around 413 million poor, if there had been no PDS from which people could buy subsidised food. Of this number, around 10 million (2.4%) were lifted above the poverty line because of access to PDS. In 2004-05, following a shift to targeted PDS, that number had risen to 14 million out of 417 million — or 3.3%.

But it was after 2004-05 that a sharp shift happened, with the number of poor falling to 402 million, despite it being a drought year, of which 38 million (10%) were lifted out of poverty due to PDS. And in 2011-12, preliminary results indicate that without any system of food transfers there would have been 330 million poor in the country. Because of PDS, the number of poor lifted out of poverty was 50 million (15%). About 30% of the reduction in the poverty rate between 2004-05 and 2009-10 was attributable to PDS, according to the paper. And that’s not even the whole story, since the food subsidy system also supports the midday meal scheme which accounted for another 17 million poor being lifted out of poverty in 2009-10.

Has PDS Changed?

Underlying these shifts is evidence from other surveys of a sharp shift in the nature and reach of PDS. In the late 1990s, the scope of PDS was narrowed sharply, with the introduction of the so-called targeted PDS, which created two categories of consumers — those below the poverty line who got grain at highly subsidized prices, and those above the poverty line who received grain at far less subsidized prices. This shift, in 1999 under the NDA government, led to a sharp drop in the coverage of PDS and a jump in the ‘leakages’ — the share of grain that was supposed to reach the intended beneficiaries but didn’t — from the system. But it was after 2004-05 that PDS reversed course.

New research argues that the public distribution system lifted 38 million people out of poverty in 2009-10.

It was a policy reversal, effectively resulting in a more inclusive and broader system in a number of states, which was rarely officially acknowledged as such. It may be tempting to align this shift with the change in governments at the national level with the UPA coming to power, but the Congress-led government at the Centre had relatively little to do with this shift. As the authors point out, much of the effort at improving PDS was done by individual states. These included Tamil NaduChhattisgarh, Odisha and Bihar.

“Such ownership and effort [by states] appears crucial,” say the authors. “Its lack was one reason why PDS failed before 2004-05…” And interestingly, increase in the expenditure on the food subsidy and PDS system by both the Centre and states since 2003-04, as a share of GDP, has been entirely due to increased expenditure by states, not the Centre. The other big shift that actually led to a de facto broadening of PDS was a Supreme Court order in 2001 which required all states to implement the midday meal scheme.

Out of Poverty

In their study, the authors looked at data on families recorded in the large scale NationalSample Surveys, who bought food from PDS in different years. They valued the amount of food bought from PDS at their market prices in those years. The difference between the subsidized price the families actually paid, and what they would have paid had they bought that food from the market amounts to a transfer of funds from the government to the poor. The authors then calculated the number of poor people who, because of such a transfer, ended up with a consumption level that was higher than the level which determined the poverty line. The authors found that 1.3% of the population was lifted above the poverty line as a result of such transfers in 1993-94, 2.6% in 2004-05 and 4.6% in 2009-10.

“…increased food transfers accounted for 32% of reduction in the Tendulkar Head Count Ratio between 2004-05 and 2000-10,” say the authors. The Head Count Ratio is the technical term for the poverty rate published by the , which was 22% in 2011-12, down from 29.8% in 2009-10 and 37.2% in 2004-05. The authors acknowledge that 2009-10, being a drought year, could well be an anomaly, since high food prices would have forced many more families to be reliant on subsidised food from PDS, leading to a bounce in the number of people who benefitted from it.

However, say the authors: “Since a vital role of PDS in food security is to cope with drought and high food price inflation, this is a matter that should be noted rather than played down when evaluating whether PDS is effective or not.” Despite criticism of the National Food Security Act, it may have history and evidence on its side to a greater extent than usually believed.

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