Shielding the poor from the COVID-19 pandemic

By Ramji Krishnan & Vidya Ramji

Prior to the pandemic, the World Bank estimated 176 million Indians were living in extreme poverty. Its poverty projections for June this year for South Asia suggest Covid-19 could generate 88 million additional poor at $3.2/day and another 88 million additional poor at $5.5/day poverty lines.

The challenge is to ensure a pandemic does not unravel the gains made in poverty alleviation. In times of distress, inability of a working member to earn is a common cause of impoverishment. In 2016, the Prime Minister announced a 10-point agenda for disaster management. A key element was to work towards risk coverage for all—starting from poor households. Some steps have been taken to ensure financial inclusion and risk insurance. Yet we do not have one for basic sustenance during a disaster—targeting the millions of poor who need it the most. Microcredit programmes and safety-net based cash transfers, which scale up in the event of a disaster, are viable alternatives.

The negative effects of nutrient shocks on young children are well known. Stunting is associated with adverse outcomes in the adulthood, with poor health and greater risk of poverty. The Indian government follows programmes such as the Integrated Child Development Services scheme. Mid-day meals have had positive height effects for children of families struck by drought. Due to the current pandemic, most meal schemes have been in limbo for the past three months. We focus on two determinants influencing specific nutrition-sensitive interventions—buttressing household incomes as an ‘emergencies only’ measure, and as a longer-term measure improving the degree of diversity in agriculture to produce appropriate nutritional requirements.

Specific safety-net schemes can be designed to support the needy (BPL/AAY category) during periods of extreme emergencies. It is primarily a DBT to assist the destitute and protect the vulnerable, to tackle the three challenges imposed on PDS—affordability due to lack of sufficient regular income, leakages wherein intended beneficiaries are left untargeted, and provision of appropriate nutritional requirements. These schemes can be implemented at scale, and can explicitly target the poor and the vulnerable during periods of distress. Importantly, sustenance programmes can help poor families avoid irreversible losses and prevent them from costly long-run consequences. Further, a cash transfer produces changes in food consumption and diet diversity (as the beneficiary has a choice) and hence more likely to reduce stunting.

To address poverty, the World Development Report advised three strategies—promote economic opportunities for poor people through equitable growth, facilitate empowerment by making institutions more responsive to poor people, and enhance security by preventing and managing economy-wide shocks by providing mechanisms to reduce the sources of vulnerability that poor people face. Policy actions that promote equitable growth, remove inefficiencies and empower people reinforce strategies to reduce poverty. They address the problem of insecurity for the long term. Actions that undermine are those social schemes that are financed by high taxes on wages and employment—clearly the ones to be avoided.

Paying for these safety-net schemes entails plugging leakages. A majority of the rural population covered under the NFSA are poor farmers. The government incurs additional costs in procuring, storing and redistributing grains to the same farmers from whom they bought the grains! DBT of about Rs 700 per month per family and Rs 500 per month per family for AAY and BPL households, respectively, can improve their net benefits by 25-30%; it’s better than physically distributing grain to them.

A World Bank study posits that policies that impact food systems such as agricultural regulations can have a large impact on poverty and, consequently, stunting. Investments that increase agricultural productivity and supply of appropriate food nutrients are potentially an important way to address hunger and undernutrition for the longer term. Redeployment of wasteful price support schemes can assist in meeting policy initiatives without recourse to expensive budget outlays. States make bonus payments over and above MSP for growing wheat and rice (for example, Madhya Pradesh spends over Rs 1,500 crore annually for wheat). Such bonuses distort markets by crowding out the private sector, exert pressure on land productivity/groundwater resources, and overburden the exchequer with excessive cereal stocks. Coupled with open-ended procurement, the situation worsens. Diverting these bonuses to support MSP for crops such as soya bean can assist poor farmers with better price, and reduce burgeoning imports of pulses and edible oil. Importantly, it also addresses the critical availability of proteins in the diet—in a predominantly vegetarian country—to address linear growth and prevent stunting. Further, it reduces costs of carrying excessive buffer stocks, thereby reducing government expenditure.

Designing effective social insurance or support programmes can be complicated. The benefits accruing to the distressed should not induce moral hazard or minimise incentives to work. They also need to be funded in an adequate and sustainable manner. The state may not be able to bear the entire risk so the development of domestic private insurance markets may help, which could result in additional efficiency gains accruing to the economy.

India has been successful in vastly reducing the number of the poor living in extreme poverty. However, the pandemic is threatening to unravel the gains and add another 176 million to the poor category. Governments can influence factors affecting stunting and hunger by adopting policy measures of increasing incomes of the poor through a cash transfer programme, and by promoting dietary diversity in agriculture, i.e. include safety net schemes (short term) and agricultural interventions (long term). This can end cycles of chronic and intergenerational poverty and enable households to undertake investments in the human capital of womenfolk and reduce stunting in their children.

Funds for these safety net schemes can come from improved efficiencies by reducing leakages in PDS through DBT. Redeployment of wasteful government expenditures (such as bonuses on top of MSPs) to improve supply of much required nutrients through agricultural policy interventions can go a long way in improving availability of proteins. Effective disaster risk financing instruments and strategies can be developed by joining hands with international institutions. Thus, a well-designed social insurance scheme can become a permanent feature. This can assist the poor in times of distress, alleviating poverty and increasing prosperity by safeguarding development gains.

Authors are Sloan fellow, London Business School, and senior public finance consultant, Kran Consulting