Impact on Consumption and Poverty

1986-87 NSS data

Using NSS 1986-87 household level data, Radhakrishna et al (1997) estimate the extent of income transfer through PDS to the poor, and the consequent reduction in poverty in terms of percentage and severity. They also assess the nutritional impact of PDS on the poor as well as the cost per rupee of income transferred to the poor. The main findings of their study are the following.

(a) Welfare gains due to PDS are negligible. The per capita income gain to the poor from all consumer subsidies was no more than Rs.2.01 per month, or 2.7 per cent of their per capita expenditure, in rural areas and Rs.3.4 per month (or 3.2 per cent of per capita expenditure) in urban areas. The overall transfer gains were very meager although there were differences in income transfers between the commodities and across states.

The income transfers due to PDS (food and non-food) in Andhra Pradesh and Kerala

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were much higher than Orissa and U.P. The study also shows that the transfers are regressive i.e. non-poor are getting higher benefits²⁵.

(b) Another finding is that there has been minimal impact of PDS on poverty.

With the exception of Kerala and Andhra Pradesh, the impacts on poverty are negligible.

If we consider the country as a whole, there would have been a decline of barely 2 percentage points in the poverty ratio due to combined incidence (income gains) of food and non-food consumer subsidies. In the cases of Andhra Pradesh and Kerala, however, there would have been a decline of 4.64 and 5.49 percentage points respectively in the rural poverty ratio.

Impact on Food consumption using 1994 NCAER data

National Council of Applied Economic Research (NCAER) collected data on various aspects of consumption from 34000 rural households. The survey asked respondents whether the household had bought any cereal from the PDS in the month before the survey. It then asked what quantities of a few basic foods were bought from the PDS. Using this data, Bhalotra (2001) examined the impact of PDS subsidy on consumption. The study uses a wealth of socio-economic data available for both participating and non-participating households in a multivariate analysis that permits estimation of conditional effects of policy interest. From the NCAER data one can estimate the rise in food expenditures (encompassing quantity and quality increases) in response to the food subsidy. The results show that the mean predicted food-share of PDS users is 50.9%. It turns out that this is not significantly different from the actual mean food share of this group, which is 50.5%. For the poor (bottom 40% of the population), the actual and predicted food share is 67%. This can be interpreted as, if the average subsidy for the average household from the PDS is 23%, the PDS using household buys 23% more food than the all - India average. But this result varies across states. In the case of Andhra Pradesh, for example, a unit subsidy of 26 per cent stimulates a 16 per cent

25 Also, see Parikh (1994) 1986-87for income gains due to PDS.

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increases in food purchases. The study shows that, in every state, PDS use is associated with a positive increase in food purchased.

Bhalotra’s study also examines whether additional spending on food can be distributed equally amongst boys and girls. The results show that any additional spending on food is distributed equally amongst boys and girls. This result is unchanged when the sample is restricted to the poorest 40% of households. Both boys and girls get a slightly larger share of food amongst households that use the PDS but the difference is not significant.

Comparison of 1986-87 and 1999-00

In order to get the impact of PDS in recent years and to compare with 1986-87 data, we examined the income gain for the poor at all India and state levels by using NSSO 55th Round (1999-00) data on PDS. All computations are made using the household level data. Table 25 and 26 provide income gains for all commodities under PDS for 1986-87 and 1999-00 at all India level and states respectively.

Income gain for the consumer is the difference between the value of the quantity of goods purchased in PDS when evaluated at market prices and the actual value of PDS purchases. The NSSO data gives the purchases made in PDS and open market in both quantity and value terms. Prices implicit in these data are used to derive the income gain.26 The income gains vary with quantities purchased in PDS, open market prices and PDS price. Though the central issue price is the same for all states, the income gains can be higher for some states on account of lower PDS prices due to additional state

subsidies.

Following are the findings on income gains and poverty.

26 It is important to note that the assumption here is that there is no quality difference between PDS and open market grains. If in fact the grains bought in the open market were of a superior quality and this were factored into our analysis then the income gain from the PDS would be even lower.

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(a) The income gains through PDS formed about 1 percent of the total monthly per capita expenditure of the same income category in rural areas and 0.65 percent in urban areas at the all India level in 1999-00 (Table 25). As compared to 1986-87, the income gain to the rural poor in 1999-00 was higher by about one percentage point. On the other hand, there was marginal reduction in income gain for urban poor.

(b) Income as % of total monthly per capita expenditure of the same income category increased for most of the states in rural areas. Income gain in 99-00 as compared to 86-87 was higher in Orissa and Tamil Nadu. If we look at 1999-00 data only, the highest income gain for the poor is in rural Tamil Nadu (7.70) followed by rural Andhra Pradesh (5.49%) and rural Kerala (5.42%) and rural Orissa (4.30%) (Table 26).

Impact on Poverty

It is interesting to see the impact of PDS on poverty. At the level of all India, rural poverty decline due to income transfer was 0.61 percentage points in 1986-87and it was found to have increased to 1.27 percentage points in 1999-00 (Table 27). The impact on poverty increased significantly between 1986-87 and 1999-00 for Tamil Nadu, Andhra Pradesh and Orissa. In Karnataka it increased more than one percentage point. In states like Assam, Bihar, Madhya Pradesh, Maharashtra and Uttar Pradesh the increase was less than one percentage point. Similar conclusions can be seen for more sophisticated

measures like poverty gap and the FGT Index.

Table 25—Income gain from PDS Foodgrain Distribution as % of consumer expenditure: All India: 1986-87 and 1999-00

Rural Urban Poor Non-poor All Poor Non-poor All

1986-87 0.97 0.51 0.60 1.31 0.49 0.65

1999-00 1.98 0.53 0.73 1.29 0.45 0.49

Source: Radhakrishna et al (1997) for 1986-87 and NSS 55 th Round for 1999-00.

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Table 26—Income gain from PDS Foodgrain Distribution as % of consumer expenditure, Major States: 1986-87 and 1999-00

Rural Urban

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Table 26—Cont. Income gain from PDS Foodgrain Distribution as % of consumer expenditure, Major States: 1986-87 and 1999-00

Orissa

1986-87 0.00 0.02 0.02 0.07 0.06 0.06 1999-2000 4.30 1.64 2.38 2.97 0.91 1.06 Punjab

1986-87 0.00 0.00 0.00 0.06 0.02 0.02 1999-2000 0.00 0.01 0.01 0.00 0.00 0.00 Rajasthan

1986-87 0.71 0.16 0.24 0.05 0.04 0.04 1999-2000 0.26 0.09 0.10 0.26 0.05 0.06

State Rural Urban

Poor Non-poor All Poor Non-poor All Tamil Nadu

1986-87 2.29 0.99 1.29 1.72 0.60 0.86 1999-2000 7.70 4.31 4.82 6.84 2.05 2.30 Uttar Pradesh

1986-87 0.00 0.01 0.00 0.09 0.06 0.07 1999-2000 0.38 0.08 0.11 0.18 0.06 0.07 West Bengal

1986-87 0.73 0.35 0.45 2.12 0.72 0.90 1999-2000 0.88 0.30 0.38 0.93 0.15 0.19 Source: Same as Table 5.

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Table 27—Decline in Poverty Due to Income Transfers Through PDS Supply of Rice and Wheat

Rural

State/year Poverty Poverty Gap FGT

Andhra Pradesh

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Table 27—Cont. Decline in Poverty Due to Income Transfers Through PDS Supply of Rice and Wheat

Rural

State/year Poverty Poverty Gap FGT Rajasthan

1986-87 0.30 0.15 0.07

1999-2000 0.16 0.04 0.00

Tamil Nadu

1986-87 1.25 0.68 0.37

1999-2000 5.20 1.38 0.44

Uttar Pradesh

1986-87 0.00 0.00 0.00

1999-2000 0.21 0.06 0.02

West Bengal

1986-87 0.50 0.24 0.12

1999-2000 0.55 0.16 0.06

Other States 1986-87

1999-2000 1.13 0.22 0.03

All India

1986-87 0.61 0.25 0.12

1999-2000 1.27 0.41 0.14