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 fixed effects model to eliminate time-invariant unobservable characteristics to estimate the effect of IGNOAPS on household welfare. To address the issue of endogeneity, we have used the instrumental variable model. The results show that IGNOAPS reduces household poverty by increasing consumption expenditure, food and non-food expenditure. We have also estimated the effect of transfer payments received on the outcome variables and found that the amount of transfer determines the size of the welfare effect. Despite the positive welfare effects of the programme, it has a small adverse effect on household labour supply.