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Higher procurement and free distribution of food grains like wheat and rice across states to the poorest of the poor have actually lowered the income inequality in India during 2019-21, particularly for the lowest wealth quintiles for low-income states, said the said the State Bank of India (SBI) in a report on Monday.
The report further said that other studies in India too have revealed that inequality declined during the pandemic. “In fact, the NBER study concludes that there was a decline in income of the rich attributable to the high sensitivity of business income to aggregate fluctuations,” it added.
Thus, in hindsight, the Covid-19 pandemic may have been a leveller in terms of inequality, with the poor getting protected through measures such as food transfers, the report said. “IMF WP 2022 concluded that pandemic support measures by the government of India were critical in preventing extreme poverty in India and thereby prevented a rise in inequality, with food transfers.”

The Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) was introduced by the Central Government during the first nationwide lockdown due to Covid-19 in March 2020. Under this scheme, the center provided 5kg of free food grains per month to the poor over and above the food grain allocated at 5 kg per person per month for the priority households (PPH) category and 35 kg per family per month for Antodaya Anna Yojna (AAY) families at a subsidised prices of Re 1, Rs 2, and Rs 3 per kg for coarse cereals, wheat, and rice, respectively under the National Food Security Act (NFSA) to families covered under the Public Distribution System (PDS).
The PMGKAY scheme was extended several times and now central Government has approved to end the scheme with effective from 01 Jan’23 and merged with NFSA.
The Centre, from January 1 onwards, will provide foodgrains free of cost to 81.35 crore beneficiaries under the National Food Security Act (NFSA) for one year.
The food ministry on Saturday notified ‘zero price’ of foodgrains to be distributed to all NFSA beneficiaries from January 1 to December 31, 2023
The food is provided free under National Food Security Act, (NFSA) and the cost actually paid by the households for the quantity obtained from the PDS will be zero. This lower demand for cereals at market prices will concomitantly lower the mandi prices of cereals and this will have a sobering impact on the CPI food inflation.

The prices of rice/wheat (other sources) increased significantly in the last one year. Though there is no direct impact of this measure of free ration on CPI inflation, indirectly it will lower CPI. Moreover, because of the free distribution of rice and wheat, lower of demand of cereals at market price will lower the mandi prices of cereals and this will have a sobering impact on the CPI food inflation, noted the report.

The report analysed the impact of rice and wheat procurement and its free distribution on income inequality in the country. It believes there are two ways in which the procurement of cereals are lowering inequality.
First, a higher procurement , that is free of cost is benefitting the poorest of the poor in terms of subsequent free distribution of food grains.
Second, the procurement may have also put money into the hands of smaller and marginal farmers with distributional impact. This also shows that the procurement of cereals of the Government over time may have become more efficient across states.

The analysis shows inequality is significantly declining in states of Assam, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Odisha, Uttar Pradesh, Uttarakhand and West Bengal with the rice and wheat procurement.
The impact of Rice and Wheat Procurement on percentage population for Lowest and Second quantiles of wealth, revealed a sharp decline in the percentage population in such quantiles of the population.
Government transfers have also aided in lowering income inequality
Several Government transfer payments for the poor are adding Rs 75,000 to a household per annum. For instance, schemes like PM KISAN, MGNAREGA (average wage 182), MGNAREGA wage increase, Ujjwala Yojana, and PMGKAY are increasing the per person per month rural income by Rs 437.
“When the per person per month rural wages (Rs 662) are combined with transfer payments (Rs 437) received from government through various schemes results into per person per month rural income of Rs 1099, which is above the rural poverty line number, resulting into government’s efforts of removing extreme poverty,” said Dr. Soumya Kanti Ghosh Group Chief Economic Adviser State Bank of India.

“With a progressive growth in output across states as proxied by gross state domestic product (GSDP), it is clear that the fruits of such growth have clearly reverberated and dovetailed into inclusive growth. India has thus done quite well during the pandemic in terms of navigating income shocks across deciles of the population,” concluded the report.