Expert issues warning on India’s poverty plan

02/05/2010 | Sid Verma

One of India’s leading poverty experts has warned that urgent changes are needed in the government’s flagship anti-poverty plan, as debate rages on whether it is big government, or market-based reform, that is needed to meet development challenges

The leading poverty expert Suresh Tendulkar has warned that urgent changes are needed in India’s food subsidy bill, the government’s flagship anti-poverty measure this term.

His comments come as debate rages on whether it is big government, or market-based reform, that is needed to meet development challenges.

The government is set to introduce in parliament in the coming weeks a Right to Food Act, to guarantee 25-35 kilograms of grain at 3 rupees per kilogram to “below poverty line” (BPL) families, while farmers are assured a minimum support price for their produce.

In an interview with Emerging Markets, Tendulkar – who last year headed a ground-breaking committee appointed by the government to report on poverty – said that the subsidies scheme should not be accompanied with price controls.

“Food prices should be determined by market forces”, to ensure low prices for grain does not impoverish producers, “while subsidies should be paid directly to the intended recipients through coupons”, he argued.

Tendulkar said that without good local governance and enhanced monitoring systems, corrupt distributors may siphon off subsidy funds for food grains or extract a cut from poor households.

The government last month accepted the Tendulkar’s committee’s findings, that estimated India’s poverty rate at 37.2% of the population, rather than a figure of 27.5% used previously. This implies an increase in the number of BPL households from 65.2 million to almost 80 million.

Anubhuti Sahay, India economist at Standard Chartered, said: “The level of the poverty line has become a contentious political issue, because it determines eligibility to participate in many existing government-sponsored subsidy programmes”, including fuel and fertilizers – and now food.

The new estimates fuel the debate on whether the Congress Party’s avowed inclusive growth strategy is making inroads into poverty. Sahay said: “There has been some rethinking by policy makers of whether ‘large’ government is necessarily the best way” to combat poverty, or whether “reducing its direct role will give the government more fiscal room to concentrate on directly helping the poor.”

Food subsidies were previously estimated at 555 billion rupees for the 2011 fiscal year, based on the old poverty line. However, the government – which has pledged to bring down its combined state and central deficit at 9.7% in 2010 to 5.4% by 2015 – will now spend more on the poor, based on the new poverty estimates.

Tendulkar, an economics professor and former head of the Indian prime minister’s economic advisory council, said that “revenue buoyancy” from the country’s sky-high growth rate, estimated at 8.75% this year, would offset the cost of the upcoming food subsidy bill.

In any case, Tendulkar was sceptical that disbursement of food grains would address the chronic undernourishment of the poor. “Domestic consumption patterns have shifted away from cereals in the past few years, so I am not exactly sure of the level of demand from the poor for grain.”

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No government should engage in scaremongering.

László Andor, European Commissioner responsible for employment