Direct Benefits Transfers

[op-ed snap] A meaningful safety net for the poor

Note4students

Mains Paper 3: Agriculture | Issues related to direct and indirect farm subsidies and minimum support prices

From UPSC perspective, the following things are important:

Prelims level: PM-KISAN

Mains level: PM-KISAN and its mandate and benefits arising from it.


NEWS

CONTEXT

In the last week of February, the government launched a scheme to pay Rs 6,000 every year to poor rural households who own less than 2 hectares of land.

Analysis of rural income and the impact of cash transfer

  • The national sample survey (NSS) of household expenditures for 2011-12 (the latest publicly available) provides MPCE by fractile groups such as the poorest 5 per cent, the next 5 per cent, the next 10 per cent, and so on.
  • In 2011-12, the household size in rural areas in the state was 5.5. The consumer price index for rural areas changed from 111 in 2011-12 to 137 in 2017-18, giving a ratio of 1.23. Therefore, Rs 6,000 per family in terms of 2011-12 prices translates to Rs 74 per month (Rs 6,000/12/5.5/1.23).
  • According to the Rangarajan Committee Report, the poverty line for rural Bihar was Rs 971 in 2011-12.

  • Thus, the transfer leads to significant reduction in poverty. A similar calculation for all the states and union territories show a 10 per cent reduction in the percentage of the poor in many of them.

Analysis fo benefits by analysing Food security Scheme

  • The actual reductions are likely to be greater once one accounts for the benefits of the food security scheme.
  • The NSSO survey of consumption expenditure of 2011-12 provides data on the quantity of rice and wheat obtained from the ration shop and market as well as the prices at which they were obtained. The average purchase by the bottom 5 percentile households in 2011-12 was 15 kg of rice and 6.5 kg from the PDS shops at around Rs 3.5 per kg of rice and Rs 3.7 per kg of wheat.
  • The household would save Rs 195 per month on its purchase of wheat and rice.
  • With a household size of around 5.5, the food security act provides an additional income of Rs 35 per month per person.
  • The poverty line should be lower by that amount and the poverty gap would reduce by Rs 35. Thus, in the case of Bihar, another 10 per cent will cross the poverty line. Consequently, poverty will reduce from 40 per cent to 20 per cent.

Conclusion

  • The annual benefit of Rs 6,000 will provide the household some cushion against unexpected expenditure due to illness or accidents, which pushes many people to the margins of the poverty line — at times, even below it.
  • The new scheme will not eliminate poverty. But its impact on reducing poverty will not be negligible.
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