Impact Of Public Distribution System on Poverty in Odisha

1. Introduction

The state of Odisha is considered one of the backward states of India. Despite having substantial natural resources and abundant potential, the state's relative economic position is not better than medium- and high-income states (Sahoo 2018). In 2013 Odisha was ranked as the least developed state in India on its index of economic development in the Rajan Committee Report (Rajan et al. 2013). The state is in national headlines for hunger, starvation, malnutrition, death and mass poverty. Some recent studies have observed that the state has recorded a high growth rate and faster reduction in poverty in the recent past, especially during 2000s (Samantaray A &et al. 2014; Sahoo & Joshi 2018; Panda 2015; Sahoo 2019; Sahoo et al. 2020). The period recorded increased public spending on different welfare schemes such as PDS and MNREGA (Economic Survey of Orissa 2016-17). Hence it is crucial to know whether the welfare spending, especially the PDS had a significant impact on the poverty reduction in the state during the ^second period and make a comparative analysis of the impact of PDS on poverty reduction in Odisha and all of India.

The rest of the paper is divided into sections that will help us understand the issue at length. Section 2 describes the data and methodology used in this paper. Section 3 deals with poverty in Odisha & India in rural and urban regions. Section 4 presents the public spending and the impact of PDS on poverty in Odisha and India, with a concluding remark in section 5.

2. Data and Methodology

There are several measures for estimating poverty. Three standard measures of poverty are Head Count Ratio (HCR), Poverty Gap and Squared Poverty Gap measures. Estimating the poverty line is the first step for calculating the percentage of the poor. The Government of India has appointed several Commissions at different times to estimate the poverty line. Tendulkar poverty line has been used in this paper. The consumer expenditure survey (CES) rounds 2004-05 (61^st) and 2011-12 (68^th) unit-level data have been used to calculate the total income transfer through the PDS scheme in the present study. The Khera & Dreze (2013) methods have been used to calculate income transfer from the PDS scheme. In order to know the real change in income transfer over the given period, the PDS income transfer values have been converted into real term, i.e. 2011-12 PDS figures have been converted into 2004-05 prices. The poverty HCR has been calculated for Odisha and India with and without the income transfer from the PDS scheme.

The Dreze & Khera (2013) method M^h≡ Q^h.(p^m – p^s) .............................(1)

Qh is the quantity of the subsidized commodity being provided, p^m is its market price, and p^s is the PDS issue price. M^h measures the amount of money saved by household h when it buys Q^h from the PDS at a price (p^s) lower than the market price (p^m). If several commodities are supplied through the PDS, the total implicit transfer can be calculated in the same way by aggregating over commodities. This implicit transfer can be subtracted from the conventional measure of monthly per capita expenditure (MPCE) available from NSS data, and then poverty estimates with and without the implicit transfer can be compared. The Mixed Reference period (MRP) MPCE figures are used for the poverty estimation for the respective years.

3. Poverty in Odisha

This section looks into the poverty in rural and urban Odisha and India by looking into HCR, Poverty Gap and Squared Poverty Gap measures.

Figure.1: Percentage of Population below poverty in Odisha and India to Tendulkar Methodology

Source:  Planning Commission, Govt. of India.

From the figure.1 comparing the 50^th and 61^st rounds, where the poverty in India has declined by 9 per cent, the decline in poverty in Odisha is very slow at 2 percentage points. The time period 2004-05 to 2009-10 has seen a higher decline in poverty ratio in Odisha which is one of the fastest among the states. The decline in poverty is 20 percentage points in Odisha which is much higher than the national average of 7 percentage points. Even the decline in poverty ratio from 2009-10 to 2011-12 is higher in Odisha than the all-India average. However, in terms of the percentage of poor, Odisha has a higher Head Count Ratio (HCR) than all of India, both in rural & urban regions.

Figure. 2: Poverty depth and severity in rural and urban Odisha & India post-reform period.

Source: Authors calculation from unit level NSSO CES data 50^th, 61^st&68^th rounds.

Figure 2 represents the Poverty Gap (depth) and Squared Poverty Gap (severity) of poverty in Odisha and India. From the figure, it can be seen that both PG & SPG are lower in all India than in Odisha. In rural Odisha, during the 1^st period (1993-94 to 2004-05) the poverty HCR has declined (fig.1), but still, the PG and SPG have seen an increase (fig.2 &3), showing the depth and severity of poverty in Odisha during the 1^st period in comparison to all India. It implies that the distance from the poverty line to the people below the poverty line is higher in the ^first period and the income inequalities among these poor are also rising. It also means that a large number of the poor population are away from the poverty line. The poverty HCR in Odisha in the ^second period (2004-05 to 2011-12) witnessed a faster decline (fig.1). The PG and SPG both in rural and urban areas too recorded a decline (fig.2). This implies that a large population of poor are just below the poverty line. The inequality among the poor too has declined during this period. All India level has also seen a decline in depth and severity of poverty throughout the period showing a lower depth and severity at the national level compared to Odisha. While the poverty gap between rural and urban India is very low, in the case of Odisha, it is higher. This clearly shows that in terms of poverty percentage, depth and severity, Odisha is still far behind the national average.

Even though this section deals with the poverty reduction in Odisha, which is faster during the ^second period and is fastest among the states, the process that leads to faster poverty reduction during this period needs to be explored. The following section is an attempt in this regard.  

4. Process of Poverty reduction in Odisha

The whole set of literature on the mechanism and process of poverty reduction can be classified into three heads: farm growth, non-farm growth, and public spending. Fan- Hazell &Thorat (2000), Hong & Ahmed (2009) look into public spending and its impact on rural poverty. Public spending, especially on the welfare program, resulted in a poverty reduction. Public spending by the state on various infrastructure developments resulted in the rise in productivity and has directly impacted poverty reduction. The expenditure on education, health, irrigation, and various subsidies plays an important role in improving the living standard of the masses and hence the reduction in the percentage of poor. 

4.1: Public Distribution System

Whether it is the public distribution system, MNREGA, social security benefits, various pension schemes, old age benefits etc, all have resulted in a rise in the living standard of the people. One such measure is the public distribution system in India which is the subsidy, income transfer on the purchase of certain necessities of life. The Govt. provides subsidies on various commodities like rice, wheat, sugar, kerosene, etc., at different rates according to their consumption preferences. It has directly benefited the consumer and resulted in poverty reduction. By looking into the importance of the program, certain states made it universal while others kept it as targeted. If several commodities are supplied through the PDS, the total implicit transfer can be calculated in the same way by aggregating commodities. With market prices of PDS commodities (mainly wheat and rice) going up yearly and issue prices being kept unchanged or even reduced in some states, the implicit value of PDS entitlements has substantially increased. Further, the functioning of the PDS has improved in many states in recent years. This paper, attempts to investigate the value of the subsidy on PDS for the state of Odisha as well as for India, and analyses the impact of PDS program on poverty reduction.

Table.1: PDS subsidy value for the year 2004-05 (Rs)

Source: Authors calculation from NSSO unit level data of 61^st CES round.

Table.2: PDS subsidy value for the year 2011-12 (Rs)

 Source: Authors calculation from NSSO unit level data of 68^th CES round.

Tables 1 and 2 present the total income transfer from the PDS programme in rural and urban regions of Odisha and India for the year 2004-05 and 2011-12. The income transfer received for rice, wheat, sugar and kerosene is subtracted to get the total subsidy in the respective years. Tables 1 & 2 show that the rice subsidy is half of the total subsidy and shows still no significant shift in the consumption basket of the poor. The subsidy on PDS has increased very fast over these years in Odisha, both in the nominal and real term. The value has been converted to real 2004-05 prices using the Tendulkar poverty line for the year 2004-05 and 2011-12 to compare the given years. As we know, the income transfer will improve living standards through increased consumption expenditure. Tables 1 & 2 show that the increase in consumption expenditure is faster in rural Odisha, followed by urban Odisha, rural India, and urban India. The impact of these programmes on poverty can be calculated by adding these mean values to the total MPCE; applying the same poverty line, one can derive whether poverty has declined or not.

5. Impact of PDS Subsidy on Poverty

The simplest way of assessing the impact of the PDS on poverty is to look at it as an implicit income transfer. This implicit transfer can be subtracted from the conventional measure of monthly per-capita expenditure (MPCE) available in National Sample Survey data, and then poverty estimates with and without the implicit transfer can be compared. This is the basis of the poverty comparisons presented in this section. To Dreze & Khera (2013) the impact of the public distribution system on rural poverty in Odisha is well above the all-India average, a state where the PDS has significantly improved in recent years. The PDS impact on poverty via income transfer or subsidy through PDS across the MPCE deciles in urban and rural areas of the major states in India (Thomas & Chittedi 2019). Further, the effectiveness of PDS has improved over time, and it has emerged as an efficient instrument in targeting the twin problems of undernourishment and poverty in India (Kumar et al. 2015). In-kind food transfer also has a poverty-reducing impact in the country (Himanshu & Sen 2013). At the state level, the impact of the PDS on rural poverty varies greatly. In states like Jharkhand and Uttar Pradesh, where the functioning of the PDS was very poor, the impact is very small. However, in states with a well-functioning public distribution system, the impact of the PDS on rural poverty is substantial, especially in terms of the distribution-sensitive poverty-gap index. This also applies to other states with relatively effective PDS, such as Tamil Nadu and Andhra Pradesh. As one might expect, it only applies to states such as Bihar, where the PDS still needs to be in better shape.

Table.3: The Actual &Computed value of MPCE & HCR with & without PDS Subsidy for the year 2004-05

Source: Authors calculation from NSSO unit level data of 61^st CES round.

Table.4: The Actual &Computed value of MPCE & HCR with & without PDS Subsidy for the year 2011-12

Source: Authors calculation from NSSO unit level data of 68^th CES round.

Table.5: The Actual & Computed HCR with & without PDS Subsidy during 2004-05 to 2011-12

Source: Authors calculation from NSSO unit level data of 61^st &68^th CES round.

Using the Tendulkar poverty line, the HCR in rural and urban Odisha for 2004-05 were 61 & 38 per cent, respectively. When we subtract the implicit PDS transfer from the actual MPCE, the head-count ratio rises to 66 & 39 per cent, respectively, for rural & urban Odisha. For 2011-12, the HCR in rural and urban Odisha is 36 & 17 per cent, respectively. After deducting the implicit transfer from the MPCE figures, the poverty figures increased drastically to 67 & 24 per cent, respectively. The implicit transfer positively impacts poverty reduction, and the impact is higher in Odisha compared to all India levels. Even though there is a possibility of an increase in poverty HCR by 1 per cent in rural Odisha without any income transfer between the periods, the income transfer causes a reduction in poverty in rural Odisha by 25 per cent. It shows the PDS is having a larger impact on poverty HCR especially in rural areas, compared to the urban counterpart. Thus, in a state like Odisha, where the system functions relatively well, the PDS substantially impacts rural poverty, at least in terms of conventional poverty measures. The impact of PDS on poverty depth & severity can also be measured by using the same procedure.

6. Conclusion 

Odisha has achieved a higher reduction in poverty during 2004-05 to 2011-12 compared to 1993-94 to 2004-05. The income transfer through PDS significantly impacts poverty reduction in Odisha during this period, especially in rural Odisha, which is higher than the national average. The major limitation of this study is that it has not covered the other possible factors responsible for poverty reduction which could have shed more insight for policy implications. However, from the analysis, we derive the inference that for the growth to be pro-poor, public spending & welfare spending should be enhanced at the regional level.