Inflation to have negligible impact on poverty in India: FM

Even though inflation has become a worry for the government and the central bank, a United Nations Development Programme (UNDP) report says inflation will only have a "negligible impact" on poverty in India, highlights finance minister Nirmala Sitharaman. It also says that targeted transfers help poorer households cope with price spikes. Reacting to the report, Sitharaman says the Modi government has been transferring food and cash to the poor in the country via schemes like PMGKAY and PMGKY.

"From the beginning of the pandemic, Modi Govt has implemented such targetted & time-bound transfers of food and cash to those at the bottom of the pyramid through the PMGKAY and PMGKY. These results highlight the effectiveness of this strategy," she tweets.

India’s retail inflation slightly moderated to 7.01% in June 2022 from 7.04% in May this year, shows the government data. This marks the sixth month that retail inflation has remained above the tolerance band of 4-6% recommended by the Reserve Bank of India (RBI). Rural inflation increased marginally to 7.09% in June from 7.08% in May. Urban inflation, however, saw a sharp downturn to 6.92% during the month under review from 7.08% in May 2022.

The UNDP report shows inflation in India will not push anybody below the lower poverty line of $1.9/day, while only 0.02% and 0.04% of the population will go below the higher poverty lines of $3.3/day & $5.5/day, respectively, highlights the FM.

On the global level, food and energy inflation could push up to 71 million people into poverty, says the report. "We find that targeted & time-bound cash transfers are the most effective policy tool to address the impacts," she says, while quoting the report.

As per the UNDP report, soaring food and energy prices impose tough challenges, especially for developing countries. "There are normative and instrumental reasons to shield poor and vulnerable-to-poverty populations from risks of impoverishment and to prevent short-term shocks from translating into persistent economic deprivation."

It says that the governmental policy toolkit for protecting people’s livelihoods has several options such as a one-off or timebound income support; in-kind and quasi-cash transfers (e.g., school-feeding and vouchers); “blanket” subsidies (e.g., price caps or freezes); unemployment insurance; and tax cuts (e.g., VAT or fuel tax).

The IMF has identified around 70 countries implementing at least one of the above policy options. Cash transfers, vouchers or reduced utility bills are common practices in advanced economies, while in developing countries the most-used tools are tax cuts and reliance on existing subsidies.

The UNDP report, however, warns that as food and energy prices soar, the excessive additional fiscal burden of such policies may become "unsustainable and harmful". These special measures may divert resources away from key sectors like social protection, health and education, potentially hitting poorer groups harder. They may hurt the environment and delay energy transitions; and they may be difficult to reverse without fuelling social and political tensions, the report adds.

To ease the inflationary pressure, especially on the poor section of the society, the government on May 21 cut the excise duty on petrol and diesel, ₹200 subsidy on LPG gas cylinders. The excise cut on fuel and subsidy outgo on LPG cylinders will cost over ₹1 lakh crore to the central government.

Under the Pradhan Mantri Garib Kalyan Yojana (PMGKY), the Centre announced a ₹1.70 lakh crore relief package for the poor to help them fight the battle against coronavirus in March 2020. The measures included food and money in the hands of the poor, insurance cover for health officials, increase in MNREGA wage, among others. The Modi government launched PMGKAY (Pradhan Mantri Garib Kalyan Anna Yojana) to provide free food to the poorest of the poor amid the Covid pandemic. The Centre has now extended the PMGKAY scheme for another six months in March 2022 i.e., till September 2022.