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India: income transfers through social safety nets June 9, 2010

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Raghbendra Jha, Raghav Gaiha and Manoj Pandey

One of the paradoxes of modern India is the coexistence of high rates of economic growth and widespread under nutrition. Thus, between 2000 and 2005 real GDP per head and real per capita consumption grew at impressive rates of 5.4 per cent and 3.9 per cent per annum respectively. Yet more than 75 per cent of the population has daily per capita calorie consumption below the minimum requirements for Indians.  Concurrently, the food subsidy bill has been rising rapidly and was a staggering Rs. 370 billion for Below Poverty Line (BPL) households in 2009-10.

Now, the government is seeking to enact a National Food Security Bill (NFSB) which purports to provide 25 kg of rice or wheat per month to each BPL family at Rs 3 per kg, failing which a poor person can seek redressal.  Undoubtedly, the logistical and administrative implications of such a sweeping legislation and the subsidy involved would be staggering.  The NFSB therefore needs to be implemented keeping in mind some hard ground realities.

To anticipate the likely performance of NFSB, it is necessary to quantify the extent of income transfer, particularly to BPL groups, by existing nationwide social safety nets as well as some of the opportunity costs to households.   This can only be done through household surveys which focus on these issues.  This article reports on the results of an investigation by us into two of the most important social safety nets in operation: the National Rural Employment Guarantee Scheme (NREGS) and the Public Distribution System (PDS), on the basis of a representative sample, collected in 2007-08, of households in Rajasthan, AP and Maharashtra. The state level rural poverty cut-off points for Rajasthan, AP and Maharashtra were 450.58, 352.40 and 435.76 rupees per month per person, respectively.

In Rajasthan, more than one-third of the participating households had to wait for more than 45 minutes to make purchases from Fair Price Shops (FPS) whereas nearly 90 per cent of PDS participants in AP and Maharashtra had to wait 45 minutes or less. The mean waiting time for a PDS participating household was highest in Rajasthan (more than 54 minutes), followed by AP (about 30 minutes) and Maharashtra (about 24 minutes). In Rajasthan, BPL card holders had highest mean waiting time while APL card holders had the lowest. In AP, APL card holders had the least mean waiting time followed by BPL and Antodaya card holders. In Maharashtra, BPL cardholders had the highest mean waiting time followed by APL and Antodaya cardholders.

For wheat, real mean income transferred per household per month (RIT) was the highest for Rajasthan (Rs. 9.44), followed by Maharashtra (Rs. 4.59).  Mean RIT for acutely poor participants in wheat consumption was nearly same in both states; however, significantly higher in Rajasthan for moderately poor, moderately non-poor and affluent participants. In Rajasthan, mean RIT was highest for affluent and lowest for acutely poor households. In the case of rice, Andhra Pradesh had highest mean RIT (Rs. 7.38), followed by Maharashtra (Rs. 4.21) and Rajasthan (Rs. 3.24). While in Rajasthan and Maharashtra mean RIT was lower for poor households, in AP it was the other way round. In AP, moderately non-poor and affluent had slightly higher mean RIT. For food grains, Maharashtra had highest mean RIT (Rs. 12.45), followed by Rajasthan (Rs. 10.14) and Andhra Pradesh (Rs. 7.38).  Whereas mean RIT was highest for acutely poor households in Rajasthan and AP, it was highest for the affluent in Maharashtra.

In the case of NREGS, the maximum distance participating households needed to travel to a worksite in Rajasthan was 8 km. or more. In Maharashtra and AP, the maximum distances of NREGS worksite for participating households were 4 km and 6 km, respectively.  In AP and Maharashtra, respectively, about 10 per cent and 6 per cent of the participating households lived within a distance of 0-1 km from the NREGS worksites. However less than 3 per cent of the participating households in Rajasthan lived within this distance.  Majority of the participating households (71 per cent in Rajasthan, 77 per cent in AP and 87 per cent in Maharashtra) lived within 1-3 kilometers from the worksite.

In the three states, the poor depended considerably on NREGS as a supplementary source of income, with NREGS share in income being the highest in AP (about 17 per cent), followed by Rajasthan (10 per cent) and Maharashtra (about 7 per cent). In Rajasthan, this share declined from acutely poor households to affluent. In contrast, in AP this share increased from acutely poor to moderately poor and then fell. In Maharashtra, this share increased from acutely poor to moderately poor and then declined.

Thus the opportunity costs are sometimes quite high and the benefits modest. These ground realities need to be taken into account in the design and implementation of the NFSB.

(Raghbendra Jha is Professor of Economics and Executive Director at Australia South Asia Research Centre, Australian National University, Raghav Gaiha is Professor of Public Policy at Faculty of Management Studies, Delhi University and Manoj Pandey is Research Associate at Australia South Asia Research Centre.)

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