Cash, on Delivery

India has employed its direct benefit transfer system
to help people tide over the ongoing health and economic crises.
Its real test will come when the crises deepen

WITHOUT ANY cash or work, how will I survive? That was my first thought after reaching my village,” says Ram Kewat, a 60-year-old daily wage labourer.

It’s a journey of 450 km from Delhi to his village on the outskirts of Jhansi, one of Uttar Pradesh’s southernmost districts. Kewat covered that distance on foot in just five days, walking an excruciatingly tiresome 90 km a day on an average to reach his village on March 29. After the government announced a three-week nationwide lockdown to prevent the spread of COVID-19 on March 24, Kewat knew that he would be out of work and food, and decided to walk to his village since there was no other mode of commute.

Upon reaching his village, he survived on food provided by a local non-profit for a week and was out of sorts when, on April 7, he received a message on his phone informing of a INR 2,000 deposit in his bank account under the Pradhan Mantri Jan Dhan Yojana (PMJDY). “I had completely forgotten about this account that I had opened last year,” he says. “I didn’t receive any money in 2019. The money credited this year is a blessing,” he says. PMJDY was launched in 2014 to provide universal access to banking services. In 2019, when the government announced the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme—an income support scheme for farmers—Kewat registered to receive cash support of INR 6,000 a year in three instalments. He opened his PMJDY account using his Aadhaar number, and his mobile phone was also seeded to this account.

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Kewat is one of India’s 100 million migrant workers—a number estimated by the United Nations Development Programme (UNDP) in April this year— many of whom have left cities for villages because they can no longer pursue their livelihoods. In his case, one can see the importance of the government’s ability to provide life-saving support during crises. As per a submission made by the government to the Supreme Court on March 31, over 0.6 million people who were on the roads had been stopped and were being provided accommodation, while over 22 million were being provided ration. The numbers are likely to have gone up and would need support in form of cash as well as food for at least two to three months before the situation normalises and they can return. There are millions others in cities and villages who would need support. Identifying them and providing them assistance is the government’s biggest challenge, especially because the economy has come to a standstill due to the lockdown. As per State Bank of India’s Ecowrap research report released on April 16, almost 70 per cent of India’s economic activities have stopped. What makes the situation worse is that the states with the most number of covid-19 cases—Maharashtra, Tamil Nadu and Delhi—are also the biggest contributors to the country’s economy. According to an HDFC Bank press release in April, these three states account for 30 per cent of India’s GDP. Similarly, the cluster of Uttar Pradesh, Rajasthan, Andhra, Telangana and Madhya Pradesh, where covid-19 cases are rising fast, accounts for 34 per cent of India’s manufacturing activity. This makes resumption of economic activities difficult in the near future, even after the lockdown is lifted.

Kewat is one of India’s 100 million migrant workers—a number estimated by the United Nations Development Programme (UNDP) in April this year— many of whom have left cities for villages because they can no longer pursue their livelihoods.

Preferred mode
Year-wise fund transfers show how the government increasingly relies on providing benefits directly to people

Source: Direct Benefit Transfer Mission

DBT dose for COVID-19

To help people tide over the lockdown, Union finance minister Nirmala Sitharaman, on March 26, announced a INR 1.70 lakh crore direct benefit (DBT) package for 800 million people— roughly two-thirds of India’s population— under Pradhan Mantri Garib Kalyan Yojana (PMGKY). On May 12, Prime Minister Narendra Modi announced an economic recovery package worth R20 lakh crore. Between May 12 and May 17, the finance minister held four press conferences to give details of the INR 20 lakh crore recovery package, which is inclusive of the INR 1.7 lakh crore but is an larger recovery programme with components much beyond DBT.

The INR 1.7 lakh crore DBT package includes support in cash and kind. Under cash support, INR 500 will be transferred to all 200 million women with accounts under PMJDY and INR 2,000 to 87 million farmers under the PM-KISAN. This is an advancement of two months for the first instalment in the new crop cycle and the amount that Kewat received in his account. A government press release on June 3 said that about 420 million people have been provided financial assistance of INR 53,248 crore under PMGKP. This comes to an assistance of about INR 1,267 per person.

The cash support of the package also includes the increased wages under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)— from
INR 182 to INR 202 a day—for 136 million beneficiary families. The support in kind was announced for three months and was majorly being provided through the Public Distribution System (PDS). It includes free supplies of 5 kg wheat or rice per head per month, 1 kg of preferred pulses per family per month through the and three refills of LPG cylinders under the Pradhan Mantri Ujjwala Yojana. Till June 4, nearly 103 lakh metric tonne (LMT) foodgrains have been provided to 2060 million people over a three month cycle i.e 680 million in a month, claims the government.

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State governments too have started sending cash helps to stranded migrant workers. Down To Earth-Centre for Science and Environment Data Centre estimates that five states declared cash support of up to INR 1,000 to some 1.5 million workers by April 25. Some 15 states also declared their own support schemes for people impacted by the covid-19 pandemic.

However, going by experts, these efforts might not be enough. SBI’s Ecowrap report puts the total loss in income to India’s 373 million workers (self-employed, casual workers and regular workers) during the lockdown at around INR 4 lakh crore (or 2 per cent of GDP) and clearly states that the relief package is not adequate. “We believe that to enable these sectors to grow at the same pace as they would have grown in normal times, a fiscal package of at least INR 3.5-lakh crore is needed. Our estimates also suggest that given a labour and capital income loss of around INR 3.60-lakh crore, the minimum subsistence fiscal package must be scaled up by INR3-lakh crore, over and above the incremental INR 73,000 crore that was unleashed in the first phase,” the report states. What this means is that in the INR 1.7 lakh crore package, only INR 73,000 crore were fresh announcements and the rest were already budgeted for in the Union Budget 2020-21. For example, the payments under PM-KISAN were accounted for in the budget and have just been given in advance and also counted as part of the recovery package.

Moreover, arranging for and delivering the benefits is a gigantic task and there have been huge lapses. In a webinar organised on May 2, 2020, the Institute of Human Development (IHD), a Delhi-based non-profit, estimated that relief measures introduced in the wake of covid-19 have reached only a third of the country’s total migrant workers.

Take the case of Kamla Prasad Verma, a farmer from Uttar Pradesh’s Shrawasti district. He should have received INR 2,000 under PM-KISAN and INR 500 in his mother’s Jan Dhan account, but neither amount was credited till mid-April. “I took the phone and my wife’s Aadhaar card details to the village pradhan and he checked. No amount has been credited till mid-April,” Verma says. Same is the case with Narottam Baiga, a 45-year-old wage labourer from Madhya Pradesh’s Umaria district. His village has 107 households and all have Jan Dhan accounts, says Vrindivan Singh, a social activist who works in the village, but nobody has received any money.

What these cases highlight is that implementation of DBT will be the real test for the government. Data shows that the covid-19 relief programme is the biggest, widest and longest of the government’s relief operations in the past 100 years. At its best, it is also the quickest. The arrival of INR 2,000 in Kewat’s account weeks after the government announced the scheme is testimony to the speed at which the DBT infrastructure can work. “Relief through DBT will be of utmost importance,” says Santosh Mehrotra, professor at the Centre for Informal Sector and Labour Studies, Jawaharlal Nehru University. The speed at which these benefits are delivered could be the game changer.

Evolution of DBT

Currently, 425 schemes across the country were delivered through DBT. Of these, 63 are "in-kind" schemes while the remaining are either cash schemes or a mix of cash and kind. But the mechanism was not always so widespread and has evolved over two decades. The erstwhile Planning Commission made the blueprint for the cash transfer method in 2011. Mehrotra, who was then director general of Planning Commission’s Institute of Applied Manpower Research, prepared the paper titled “Introducing Conditional Cash Transfer in India”. The paper stated: "India has had a long history of untargeted or poorly targeted subsidies, which are in need of replacement, especially because the fiscal burdens of these subsidies have, become increasingly unbearable after the multiple fiscal stimuli post-2008 economic crisis." The idea of DBT was triggered by the expensive way of delivering these schemes. To provide one rupee of development, India spent INR 3.65 in delivery in 2000, according to official estimates.

The Economic Survey of 2010-11 for the first time propounded the transition to a complete DBT mode with more unconditional cash transfer schemes. In the Union budget of 2011-12, the government declared a taskforce led by entrepreneur Nandan Nilekani to explore ways and means to implement DBT, particularly for subsidies. On January 1, 2013, India for the first time shifted seven Centrally-sponsored schemes into DBT mode (see ‘Evolution timeline’). It set up the DBT Mission under the erstwhile Planning Commission. The real push for DBT came during the first tenure of the National Democratic Alliance government (2014-2019). The Economic Survey of 2014-15 proposed the JAM trinity—a Jan Dhan bank account, Aadhaar as the verification tool and mobile phone as the personal operating system. This created the basis for delivering benefits of schemes under DBT. This had also to do with the prime minister’s strategy of delivering government programmes directly to the beneficiary, both for governance and also as an electoral strategy.

In his first term, he directed DBT to 220 million people with an aim to deliver all the basics at the household level: housing, employment, subsidised foodgrain, toilet, electricity, health insurance, farm cash support and insurance. Later he added piped water to the list as well. By now, at least one of these has reached directly into the bank account of one of the family members. In the past seven years, DBT has become the accepted way of delivering development schemes (see ‘Big schemes and DBT'). India has delivered some 450 schemes to over 900 million people through this mode (see 'Target beneficiaries'). Since 2014, the government has disbursed a whopping INR 10.98 lakh crore—close to 60 per cent of welfare and subsidies budget of the Union government—directly into the bank accounts of the beneficiaries, as per the DBT Mission website. In 2019-20, the total transfer under DBT was INR 3.81 lakh crore. This is a 40-fold increase from INR 7,368 crore transferred in 2013—the first year of DBT rollout. (see 'Preferred mode') The budget allocation to schemes under DBT constitutes around 81 per cent of the total agriculture budget of 2020-21, which indicates the volume of direct cash transfers. The government says DBT has not only made delivery precise but also helped save money by stopping pilferages and administrative costs. The savings till June 2020 stood at INR 1.7 lakh crore, says the DBT Mission website—an amount same as the first covid-19 relief package.

Benefits in kind

Of the 63 "in-kind" schemes, the most prominent ones are subsidised ration (provided under PDS in 34 states and union territories), supplementary nutrition programme through anganwadi services, mid day meal schemes, fertiliser subsidy Pradhan Mantri Fasal Bima Yojna (which provides insurance cover against crop failure), Ayushman Bharat and Ujjwala. Under “in-kind” schemes, the government or its agency incurs internal expenditure to procure and provide goods to targeted beneficiaries at free or subsidised rates. For example, the Food Corporation of India is the government agency responsible for procurement, movement, storage and distribution of foodgrains to Fair Price shops under PDS.

Beneficiaries, exclusions

The most fundamental, and troublesome, aspect of DBT is identification of the beneficiaries. Most of the DBT schemes are managed by states, except a few like MGNREGA, PM-KISAN or the Pradhan Mantri Ujjwala Yojana, where money is transferred to beneficiaries’ account directly by the Centre. For each DBT scheme the government has different criteria, beneficiary list and delivery channel. For example, MGNREGA has 90 million workers registered; the National Food Security Act (NFSA) has 810 million; PM-KISAN over 140 million; and Ujjwala over 80 million. The problem is that in a crisis situation, the government randomly select lists of beneficiary to transfer benefits, which leads to exclusions.

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In many cases, the lists are not properly targeted or exhaustive. Take the case of PDS. In the early 1990s, India made its PDS targeted and delivered subsidised food grains to below poverty line (BPL) families. The country had its first BPL survey in 1997. After that, no such list was prepared, says Umi Daniel, director, migration and education, Aide et Action International, an international non-profit. Since there is no recent BPL list, the list of beneficiaries identified for NFSA is now used for PDS. The first NFSA list was prepared in 2011-12. “It is updated every year and many transfers at the Central and state level through JAM trinity are based on the NFSA list,” says Daniel. Exclusions also mar PM-KISAN—India’s largest cash income support scheme. Since its inception in 2019, there have been glaring gaps between its identified beneficiaries and those who have received the support. For this scheme, the government has used the number of landholding as a proxy for the number of beneficiaries.

The initial estimate of beneficiaries under the scheme was 140 million. It was later reduced to 87 million because of low registration under the scheme. These 87 million farmers have been promised INR 2,000 as an upfront payment under PM-KISAN in the covid-19 relief package. “India has around 140 million landholdings and these many people might have been counted as total beneficiaries. But only 87 million beneficiaries must have been able to provide updated land records. Land records of the rest might not be complete,” says Pratap Singh Birthal, professor at the National Institute of Agricultural Economics and Policy Research, New Delhi. Also, tenant farmers are not considered for benefits and neither are people with livestocks. “There is too much exclusion,” Birthal says.

“We have to find ways to link the existing databases and make them speak to each other. But currently there is no effort to bring the different beneficiaries list together,” suggest Ravi Srivastava, director, Centre for Employment Studies, Institute of Human Development. In a crisis situation like the current one, the government should have identified beneficiaries using both MGNREGA and NFSA lists, instead of targeting only Jan Dhan account holders, because these lists have the highest number of beneficiaries with bank accounts, even more than the list of people with Jan Dhan accounts.

Currently four-fifths of Indians receive benefits in cash or kind. This huge volume also makes implementation of DBT a daunting task and leads to exclusions.

Source: Media Reports

Officials say the first installment of INR 500 for April has been transferred to all 200 million women Jan Dhan account holders

Target beneficiaries
Number of people getting assistance through the direct benefit transfer mode has increased almost 15 times between 2013 and 2020

Source: Direct Benefit Transfer Mission

Informal not counted

Still, at least the agriculture sector has a list of target beneficiaries. “There is no database for labourers in the informal sector. Identification in the informal sector in urban areas is a huge challenge and they are completely left out of any benefits,” says Shweta Saini, senior consultant at the Indian Council for Research on International Economic Relations, a nonprofit policy think-tank. “In the present crisis, there will be a lot of exclusion among the urban poor, the homeless and the destitute. There are ‘seasonal’ migrants who get excluded from the state they migrate to because one has to run around to get covered under different schemes. Generally, their families also get excluded,” Srivastava adds. That is the reason the government has waived ration card as a condition to avail free foodgrains as an emergency and temporary measure. The second PMGKY package announced on May 14 includes an expenditure of INR 3,500 crore to supply free foodgrain through the PDS network to around 80 million migrant workers who are non–card holders for the next two months.

Universalising PDS might appear to be the answer but in many cases it is not. Take the case of Bihar. “We feel that universalising the PDS in rural areas and urban slums may not seem like an urgent matter since PDS coverage in Bihar is already supposed to be close to universal (84 per cent),” economist and social activist Jean Dreze wrote in his letter to the Bihar chief minister in 2016. “However, the actual coverage is barely 70 per cent, because of population increase since 2011, ignored by the Central government,” he added. “Even if only one third of the excluded 30 per cent consists of households vulnerable to hunger, this would mean that 10 per cent of the population of Bihar (about 13 million persons, based on projected 2019 population) is exposed to hunger at this time,” he wrote. In February 2018, Jharkhand, which has been experimenting with direct cash transfer of foodgrain subsidy under PDS, witnessed widespread protests by beneficiaries. The protestors named their agitation “Ration Bachao” or save the public distribution system. Under DBT, started on a pilot basis in October 2017 in Ranchi’s Nagri block, beneficiaries had to collect their food subsidy in cash from the bank before using it to buy rice from the ration shop at INR 32 per kg. Whereas they were able to buy rice from the ration shop at Re1 per kg earlier. In January 2018, a survey organised by civil society organisations and coordinated by Dreze was conducted in 13 randomly selected villages of Nagrito assess public view. The findings were startling.

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The survey found that the DBT system was causing tremendous inconvenience and that 97 per cent of PDS cardholders surveyed were opposed to it. Nearly half of intended beneficiaries had been deprived of their food rations in the preceeding four months because they had to spend on an average around 12 hours to collect the subsidy amount and then buy food from the concerned public distribution shop. Banks are located on an average 5 km away from the respondents’ homes and at least 70 per cent of respondents had no way to find out if their DBT money had been credited without going to the bank.

Gaps in JAM, banking

The Jan Dhan account was targeted at people without access to financial institutions and to make sure that cash transfers for various subsidies are done effectively. But there have ben a lot of problems. For instance, the eligibility criteria for opening such accounts is vague which resulted in a large number of people having multiple accounts. “Jan Dhan accounts were for the rural and urban poor who do not have any existing accounts. But this could not be verified and people opened multiple accounts. They though that the government is going to deposit INR 15 lakh in each account,” says Srivastava. Since the basis of delivering direct benefits is JAM, the government’s focus was on strengthening this mechanism by not only expanding enrolment but also stringently making all benefits conditional to this trinity. In 2014-19, the government issued over 1,257 million Aadhaar cards. This was followed by opening Jan Dhan accounts using Aadhaar. The trinity’s third crutch of internet mobility also took root, with 200 million active internet users in rural India, 97 per cent of whom accessed it through mobile phones. But ever since the DBT Mission started transferring money, gaps JAM emerged. For instance, the linking of bank accounts with Aadhaar is still not foolproof or complete. Responding to a query in Parliament in February, the minister of state for finance said that 85 per cent of the current and savings accounts were linked to Aadhaar as of January 24, 2020. This means at least 15 per cent of Indians still don’t have their bank accounts linked to Aadhaar. This turns out to be 160 million Indians.

What’s worse, 23 per cent of the poorest 40 per cent in India do not have an account with any financial institution, as per 2019 data of the Reserve Bank of India (RBI). Most of them are likely to be migrant workers. “The government has to identify these 23 per cent who don’t have bank accounts,” says Mehrotra. “The exclusion errors in JAM are too many. The government has to make sure every family is included,” says Srivastava.

The large number of inactive accounts is another area of concern. Of the total accounts of the poorest in India, around 45 per cent are inactive according to “Report on Trend and Progress of Banking in India 2018-19”, released by RBI in December 2019. These people are likely to be left out of the relief measures. A case in point is money transferred to construction workers in Uttar Pradesh in the first week of April. Of the 2 million labourers registered with the labour department, money could be deposited in only 0.59 million accounts, Salil Srivastava, Uttar Pradesh State Programme Manager, Tata Trusts Migration Programme, told Down To Earth. The trust works in coordination with the labour department. “Money could not be deposited in the rest of the accounts because they were inactive or had incorrect details. The labour department has issued a WhatsApp number for those who did not get the money to send their proper account details again,” says Salil Srivastava.

Similarly, a large number of Jan Dhan accounts too are inactive. As per a reply given by the minister of state for finance Anurag Thakur to Parliament on August 3, 2018, over 60 million Jan Dhan accounts were inactive, as of July 11, 2018. “Many such accounts have been sequestered by the banks,” says Ravi Srivastava. However, government officials say the first instalment of INR 500 for April has been transferred to all 200 million women Jan Dhan account holders. “If there is any issue of inactive accounts, it will be sorted out,” says L R Ramachandran, Chief General Manager, Department of Financial Inclusion and Banking Technology, National Bank for Agriculture and Rural Development.

There is no doubt that banks are the epicentre of this gigantic relief operation and will decide if cash-transfer is effective. But there is a shortage of banking centres. The government has around 1,26,000 bank mitras or bank correspondents to deliver branchless banking services in rural areas and provide last-mile connectivity. The government has issued travel passes to them so that they can move freely even during the lockdown. The role of bank mitras is all the more important because India has 0.42 million un-banked centres and social distancing and lockdown has made access difficult. Also, digital financing services infrastructure is still dismal in rural areas. An all-India survey by NABARD on financial inclusion in 2017 highlighted that less than 2 per cent of rural population relies on mobile and internet banking. Mobile internet availability is common in rural India, but net banking is not. People need cash for their basic needs in this time of crisis.

Ramesh Prasad Pandey, a farmer of Pakara village in Madhya Pradesh’s Rewa district, says that he received a message of INR 2,000 credited to his account, but wasn’t able to withdraw because the bank branch was 13 km away. “The police are patrolling. No one in the village has gone to the branch,” he says.

Another major challenge in banking is the lack of digital infrastructure in rural areas. Of the total 2, 21,579 ATMS in the country in 2019, only 20 per cent are in rural areas. At this time, when banks have been asked to carry out only basic work, maintaining ATMS and ensuring people get the transfer on time could prove to be difficult. Ramachandran, however, says there are no issues and that the Reserve Bank of India has provided adequate funds to banks.

For DBT to work, financial inclusion, financial literacy, and real time access to the amount are prerequisites. Availability and access to these are vastly different in the country. In case of cash-for-food transfers, Saini and her team did an analysis of 26 states and union territories in 2017 and found that all states are not equally ready for DBT and don’t have the infrastructure for cash transfers. Remote areas of Odisha and Jharkhand, for instance, would not be ready for a cash transfer as there is no banking facility. There should be dedicated bank correspondents for these areas or the government should uses non-profits, anganwadi workers or panchayati raj institutions in these areas to carry cash. This entire database is with the Niti Aayog.

MGNREGA wage hike

The covid-19 relief package talks of increasing daily wages under MGNREGA from INR 182 a day to INR 202. The flagship employment generation programme was already proving to be insufficient in the face of an increase in demand for work because of widespread drought in the country. Now, with the ongoing economic crisis and migrant labourers returning to their villages, rural India is set to see a further increase in demand. The Union rural development ministry recently clarified that to keep social distancing norm intact only individual works like levelling of farm, farm ponds construction and other such works that involve two to three persons at a time will be undertaken under MGNREGA. But the persistent delay in wage disbursal—one of the problems to be solved by DBT—has been a cause behind not many opting for employment under this scheme.

In order to streamline the system of fund flow and to ensure timely payment of wages, the National Electronic Fund Management System (NEFMS) was implemented in 2016. Under the system, the Central Government directly credits the wages of the MGNREGA workers, on a real time basis, to a specific bank account opened by the state governments. NEFMS is implemented in 24 states and one Union Territory

As a result, the e-payment under MGNREGA has increased from 77.34 per cent in 2014-15 to 99 per cent in 2018-19. Currently, close to 100 per cent wage is disbursed through DBT. In May, the finance minister said that the government had cleared all pending MGNREGA wages amounting to INR 11,000 crore in April. But experts say this is insufficient. “MGNREGA workers should be given an unconditional allowance, since no work is happening right now,” says Srivastava.

DBT to stay

Despite issues, DBT is the best platform available at the moment simply because it gives one direct access to money. If the government has to send food, it has to create a logistical chain, procure food, hire trucks, and store it in ration shops. Transferring cash is administratively easier. Whether DBT or cash transfer would offset the economic damage caused by the covid-19 pandemic is a subject of debate. But currently across the world there is a rush to roll out or strengthen DBT schemes to provide immediate relief to billions. Balazs Horvath, chief economist, UNDP, Asia-Pacific, says, “If a large part of an entire generation loses its livelihood, with no social safety net to catch it, the social costs will be unbearably high. Economic instability will follow.” According to him the focus have to be the informal workers—estimated at 1.3 billion people or two-thirds of the Asia-Pacific workforce—as well as migrants, with 100 million dislocated, in India alone.

The World Bank and the International Labour Organization have been monitoring launches of various countries’ social protection schemes. As of March end, 84 countries have introduced or adapted social protection and jobs programmes in response to covid-19. This is an 87 per cent increase since March 19, 2020 with a total of 283 programmes currently in place. Among classes of interventions, social assistance is the most widely used (including a total of 150 programmes), followed by actions in social insurance (91) and supply-side labour market interventions (42).

Within social assistance, cash transfer programs are clearly the most widely used intervention by governments (over one third of total programmes, and 65 per cent of social assistance schemes). A total of 58 countries have those programmes in place, with 35 of them representing new initiatives introduced specifically as covid-19 response. Countries tend to leverage not only flagship programmes, but multiple schemes simultaneously. Overall, 97 targeted cash transfer schemes have been launched worldwide and 50 are new initiatives introduced specifically as covid-19 responses in countries like Ecuador, Peru, Iran and Italy.

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Real test

If the current crisis deepens, which is a likelihood, and the number of beneficiary spikes, India’s DBT structure would be further tested. There already are glitches. There is also a debate over the volume of the assistance provided. “In the last few days, I spoke to 40-50 beneficiaries in Uttar Pradesh and Bihar who have Jan Dhan accounts and are getting the money,” says Anjani Kumar, former principal scientist with the Indian Council of Agricultural Research and currently a research fellow with the International Food Policy Research Institute. “The amount announced is not adequate. It should have been more,” says Kumar, who has been tracking how the covid-19 relief package has helped people. But more than the amount, the accuracy and speed of delivering the assistance will decide DBT’s success.

Despite issues, DBT is the best platform available at the moment simply because it gives one direct access to money.

Covid-19 to double poverty in India

A transfer of at least Rs 750 per person a month for six months will help them recover from economic damages wrought by the pandemic

Shweta Saini and Pukit Khatri

IN THE second week of April, UN’s International Labour Organization (ILO) said that about 400 million workers from informal sector in India are likely to be pushed deeper into poverty due to COVID-19. There is no dispute that poverty will worsen in the country, but the question is by how much? We try and answer that in this article using data with the National Sample Survey Office (NSSO) and the erstwhile Planning Commission.

Through quinquennial surveys, NSSO offers estimates of monthly per capita consumption expenditure (MPCE) of households. This data, which is taken as proxy for income, was the basis of estimating poverty levels by the Planning Commission. Latest data in this regard is available for 2011-12 (2017-18 NSSO report is pending for release) and that year 21.9 per cent of the country's population, or about 270 million people, were estimated to be living below the poverty line. Using NSSO’s MPCE data and Planning Commission’s state-level poverty data as our base, we simulate the impact of income shock due to COVID-19 on the country's poverty level.

We simulate an income shock scenario, where individuals suffer a loss for three months, implying a loss of about 25 per cent in average MPCE for the year. We assume a uniform shock across the fractiles (based on MPCE, NSSO distributes population into 12 fractiles or cut-off points) and that incomes would return to pre-COVID-19 levels after the disruption from March to May.

Let's illustrate our calculations using the example of Uttar Pradesh. In 2011-12, poverty threshold levels (per person per month) for the state were Rs 768 for rural areas and Rs 941 for urban areas. Based on this, the state's poverty ratio, or the percentage of people living below the poverty line, was estimated to be 29.4 per cent. When we introduce the income (MPCE) shock of 25 per cent and measure it against the poverty line, the state's poverty ratio becomes 57.7 per cent. Upon applying this new ratio to the 2019-20 population estimates, we find that 71 million more people are likely to be pushed into poverty in Uttar Pradesh because of COVID-19 shock.

Using the same method for all the states and Union Territories, we find that in case of a 25 per cent income shock across all fractiles, India’s poverty rate rises to 46.3 per cent, which is more than twice the 2011-12 levels and higher than even the 1993-94 levels. This means India will have an additional 354 million poor, taking the total count of country’s poor to about 623 million.

At the state-level, we find that the shock increases poverty by more than double in 27 of the 35 studied states and UTs. Five states—Uttar Pradesh, Bihar, Maharashtra, West Bengal and Madhya Pradesh—account for over 50 per cent of the newly added 354 million poor.

During our calculations, we made some assumptions for the sake of simplicity. First, we assumed a uniform income shock across all fractiles. But by now, there is enough evidence that most people in the lowest fractiles (the ones already poor or at the threshold of poverty), who work in the informal sector, are the worst-hit. This shows the income shock is not likely to be uniform across all fractiles. Second, in our worst-case scenario we assumed a shock of 25 per cent in income. Sadly, there is growing and widespread evidence of job losses, majorly among low-income fractiles, indicating a likely income shock much greater than 25 per cent. Third, our assumption about incomes eventually recovering to pre-COVID-19 levels after three months is overly optimistic. Income levels in the coming months will be determined by how the economy recovers and lost employment is regenerated. Nevertheless, above exercise is extremely useful as it gives us at least a base estimate and we can infer that due to COVID-19, poverty will grow and inequality will worsen.

We use our MPCE analysis to propose a solution. Our calculations show that if the Union government makes a direct benefit transfer (DBT) of Rs 312 per person per month to its poor, then most people in most states can return to pre-COVID-19 levels of MPCE. The fact that economic situation of country was not so bright even in pre-COVID-19 times, is another matter. Given that there are likely to be about 623 million poor, this DBT will cost the government about Rs 19,500 crore per month. In case, the government increases the transfer amount to Rs 750 per person per month then it will not only help the poor recover from economic damages resulting from the pandemic but also help them assuage poverty. This DBT would cost the government some Rs 46,800 crore a month. The government may want to consider transferring the DBT amount at least for the next six months in addition to other benefits like increased entitlements under the public distribution system (PDS) and subsidy on LPG cylinders.

This pandemic is not just a social and economic crises. It is also a humanitarian crisis. Considering the uncertain future that lies ahead of us, a self-sufficient and better-prepared poor can prove to be the best weapon against the deadly virus and DBT can go a long way in ensuring this.