Free food distribution reduced income inequality in many states: Report

Free food distribution of cereals during the COVID-19 pandemic has starkly reduced income inequality across laggard states and those at the bottom of the pyramid, according to a report.

SBI Ecowrap started the research with a hypothesis of how the free food grain distribution is impacting the distribution of wealth on population quintiles for the poorest of the poor.

It has taken a cue from the International Monetary Fund (IMF) Working Paper which indicated that Pradhan Mantri Garib Kalyan Yojana (PMGKAY), which provides free foodgrains to poor people, played a key role in keeping extreme poverty in India at the lowest level of 0.8% during the pandemic-hit 2020.

The SBI study analysed the impact of the share of rice procurement (since rice is still the staple food for most of the people in India) on Gini Coefficient for 20 States and the impact of the share of wheat procurement on Gini Coefficient for nine States.

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“Our results show that rice and wheat procurement in relatively laggard states had a significant impact on reducing inequality through a reduction in the Gini coefficient,” it said.

These states were Assam, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Odisha, Uttar Pradesh, Uttarakhand, and West Bengal, and the impact of rice and wheat procurement on the percentage of the population for lowest and second quantiles of wealth revealed a sharp decline in the percentage population in such quantiles of the population.

Higher procurement benefiting the poorest of the poor

The report said that a higher procurement was benefiting the poorest of the poor in terms of subsequent free distribution of foodgrains and the procurement may have also put money into the hands of smaller and marginal farmers, with distributional impact.

This also shows that the procurement of cereals of the government over time may have become more efficient across states, it said.

Last month, the government decided to provide a free ration to 81.35 crore poor people under the National Food Security Act (NFSA) for one year. Under NFSA, also called the food law, the government currently provides 5 kilograms of food grains per person per month at ₹2-3 per kg. The families covered under Antyodaya Anna Yojana (AAY) get 35 kg of food grains per month.

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Rice is given to poor persons under NFSA at ₹3 per kg and wheat at ₹2 per kg.

Interestingly, the report said, with food being provided free under NFSA, the cost actually paid by the households for the quantity obtained from the PDS will be zero.

Mandi prices of cereals will fall

This lower demand for cereals at market prices will concomitantly lower the mandi prices of cereals and will have a sobering impact on the CPI food inflation.

“We also find that several government transfer payments for the poor are adding Rs 75,000 to a household per annum. Our results clearly substantiate that in the Indian context, it is an incorrect conjecture to assume that inequality has worsened during the pandemic,” it said.

With a progressive growth in output across states as proxied by GSDP, it is clear that the fruits of such growth have clearly reverberated and dovetailed into inclusive growth, it said, adding that India had thus done quite well during the pandemic in terms of navigating income shocks across deciles of the population.

(With agency inputs)