According to data just released by the UPA government, 250 million people, or 22% of the Indian population, was absolutely poor in 2011-12, a steep decline from the 38% level recorded in 2004-05. This is great news for India, but given the reaction in the media and opposition politicians, it is as if disaster had struck. Learned people lamented and argued that the R30 per person day poverty line, the basis for the above estimates, was set too low, that it was impossible for a person to survive on such low consumption.
This is very true. None of the politicians or the learned experts can survive on R30 per day. Theirs is an upper class survival definition. Unfortunately, the whole point about wretchedly poor developing country poverty is that most people do not earn enough to achieve not-poor middle class survival status.
No matter what poverty line the experts choose, it is the case that poverty has declined significantly during the first seven years of the UPA rule. And it is the same UPA that has significantly increased welfare programmes and expenditures for the poor. And it is the same UPA that is now stating that really two-thirds of the Indian population is absolutely poor and in need of food subsidies of 5 kg per person a month virtually free of cost (actually at R2 per kg with the market price at about R18 a kg).
In my previous article (The unimportance of NREGA, The Financial Express, July 24, 2013http://goo.gl/ZtXzGE) I had estimated the effect of the employment guarantee dole (NREGA) on poverty reduction. In this article I look at the effect of the three times larger dole of food subsidies on poverty reduction. Food subsidies are financed by the middle class taxpayer, and provided by the Food Corporation of India (FCI), a government organisation in charge of procuring, storing, and administering the supply of food to the ration shop.
There are two important leakages in food subsidy expenditures. (A leakage is defined as expenditure which does not reach the intended poor beneficiary.) The first leakage is in the quantity of foodgrains the government (FCI) states that it has delivered to the people, rich or poor, versus what the people actually receive (NSS data). Both in 2009-10 and 2011-12, this leakage amounted to R30,000 crore (with quantities valued at market prices of foodgrains). This leakage is not administrative costs, payments to FCI employees etc.