The PDS impact on household expenditure

Relevance: GS Paper II & III

Why in news? 

Recently, the National Sample Survey Office (NSSO) released the Household Consumption Expenditure Survey 2022-23.

More detail about news: 

The Public Distribution System (PDS) is an important social security programme in India. Its objective is to ensure food security. Today, up to 75% of the rural population and 50% of the urban population are eligible for subsidised foodgrains under the National Food Security Act (NFSA), 2013. If the cost of consuming foodgrains from the PDS is subsidised, this then frees up resources for a household to spend on other items such as vegetables, milk, pulses, egg, fish, meat and other nutrient and protein-rich food items. It is an empirical question whether households indeed diversify their food consumption. With the release of data from the Household Consumption Expenditure Survey (HCES): 2022-23, there will be renewed interest in the above line of inquiry, i.e., the impact of consumption of free food items from the PDS on expenditure on items other than foodgrains.  

• On representativeness: The HCES:2022-23 gathered data on food and non-food items received by households at no cost through various social welfare programs. Detailed information can be found in pages 15 to 18 of the HCES:2022-23 report published by the National Sample Survey Office (NSSO), available on the Ministry of Statistics and Programme Implementation website. 
• The survey's objective isn't to precisely estimate the proportion of households benefiting from each program. Typically, survey estimates of program coverage are lower than administrative data suggest. The literature often discusses inclusion errors (where ineligible households use PDS items) and exclusion errors (where eligible households do not use PDS items). 
• Researchers compare the proportion of households consuming PDS items with the NFSA coverage. While interpreting estimates requires caution, survey data enables examination of households benefiting from these programs. Detailed information is sought on ailments, diseases, and waived or reimbursed school or college fees. 
• However, it's not feasible to impute the value of free medical and education services received by households unless specific details are provided. Separate surveys by NSSO gather information on out-of-pocket expenditures and free services used by households for education and health. 
• Data on household payments can't be used to assess the value of medical services. Insurance products are viewed as investments rather than consumption. The All India Debt & Investment Survey, not the HCES, collects relevant information. For the first time, NSSO decided to impute the value of selected free food and non-food items. 
• This allows calculation of two metrics: Monthly Per Capita Consumption Expenditure (MPCE) and 'MPCE with imputation', reflecting household consumption values including imputed items. Both metrics are published in NSSO reports to assist analysts and researchers.
• Imputation of values: The NSSO has provided two sets of values per State and by sector (rural, urban) for imputing the value of food and non-food items received without cost, the modal unit price and the 25th percentile unit price. Consumption expenditure refers to expenses paid out-of-pocket, while the value of consumption includes items consumed by households that are received free or at a subsidized rate. 
• The NSSO report uses only the modal price for imputation of free items, emphasizing they are truly free and not subsidized. Therefore, no imputation is done for food items purchased from the PDS at nominal regulated prices.
• A significant portion of households received free foodgrains from the PDS, leading to about 94% and 95% of the imputed value being attributed to food items in rural and urban India, respectively. Even among households that did not receive free items, the imputed value for food amounts to ₹82 in rural areas and ₹59 in urban areas.
• The NSSO report categorizes households by their average monthly per capita expenditure (MPCE) into fractile classes: bottom 5%, 5-10%, 10-20%, and so on, up to the top 5%. For instance, the average MPCE of the bottom 5% is ₹1,373 in rural and ₹2,001 in urban areas, indicating the income level below which 5% of Indians fall. Analysis reveals that 20% of the rural population in the bottom fractile class actually belongs to the next 5-10% class, equating to about 86 lakh individuals in rural India. Similar upward movement is observed across fractile classes in urban areas. Patterns vary across major States, influencing the findings.
• In specific use cases, researchers may choose to impute the modal value for calculations involving purchases from the PDS at subsidized rates, potentially increasing the average MPCE through imputation. This demonstrates that even limited imputation efforts underscore the role of in-kind social transfers in enhancing the consumption value of poorer households.
• Implications for poverty: Since the report's release, there has been increasing demand for a broader debate on defining the poverty line. Key considerations include whether to assess the number of impoverished households based on expenditure alone or on total consumption value, which encompasses the worth of free items consumed. Clearly, in-kind social transfers have significant implications for the welfare of households situated at the lower echelons of consumption or income distribution.

Conclusion:

The PDS is a cornerstone of India’s social security framework, significantly contributing to food security and potentially enabling a more diversified consumption pattern among the poorer sections of society. The HCES 2022-23 provides valuable data to further understand these dynamics and their implications for poverty alleviation and social welfare policy. The imputation of the value of free items received by households is a crucial step towards a more comprehensive understanding of household consumption and economic well-being.