RIEB, Kobe University

Does the Old Age Pension Scheme Improve Household Welfare? Evidence from India

As India's population has been ageing due to declines in fertility and mortality rates, more policy emphasis has been placed on reducing poverty among the elderly. The aim of the present study is to examine the effect of Indira Gandhi National Old Age Pension Scheme (IGNOAPS) on both short and long-term household welfare indicators, such as consumption expenditure. Using the household longitudinal data based on the Indian Human Development Survey in 2004-05 and 2011-12, we have applied the Propensity Score Matching (PSM) to build a counterfactual group and have used the propensity-score weighted fixed effects model to eliminate time-invariant unobservable characteristics to estimate the effect of IGNOAPS on household welfare. The results show that IGNOAPS participation and the payments received generally reduced household poverty by increasing consumption expenditure, food and non-food expenditure. However, the results of Difference-in-Difference model imply that the poverty-reducing effect deteriorated in 2011-2012 after 2007 when a number of changes were made to programme specifications of IGNOAPS. This was likely due to the fact that some households which accessed IGNOAPS after 2007 reduced the labour supply significantly, while they did not change the level of consumption.