1 June 2024 : Indian Express Editorial Analysis

1. Journey to 2047

Topic: GS2 – Governance – Government policies – Interventions for development in various sectors

Context:

In light of recent developments both domestically and internationally, it is crucial for India to have a clear and strategic roadmap for growth. With the aspiration to become a developed country by 2047, the centenary of India’s independence, defining what it means to be a developed nation is essential. International financial organizations classify countries with a per capita income of $13,845 and above as developed, and by 2047, this benchmark will be even higher. India’s current per capita income is approximately $2,500 (IMF, April 2024), indicating a significant journey ahead. Achieving the target will require an average annual real growth rate of six to seven percent.

Investment and Growth:

• To understand the feasibility of achieving a developed status, a simple calculation based on the incremental capital output ratio (ICOR) is instructive.
• Assuming an ICOR of 5, a seven percent growth rate necessitates a real gross fixed capital formation (GFCF) rate of 35% of GDP.
• Currently, India is close to this mark, driven by increased government capital expenditures, especially from the central government.
• However, sustaining this growth through government spending is challenging due to the high fiscal deficits (6.7%, 6.4%, and 5.9% in the three post-COVID years).
• Therefore, boosting private investment by one to two percentage points of GDP is critical.
• Creating a conducive environment for private investment, both corporate and non-corporate, is essential for sustainable growth.

Strategy for Development:

• Given the global economic environment, redesigning industrial policy is vital. Post-World War II, East Asian countries adopted export-led growth strategies with remarkable success, a path later followed by China, significantly increasing its share in world exports.
• However, the global trade environment has evolved, with rising protectionism and slowing growth in developed countries.
• While India cannot rely solely on traditional export-led strategies, maintaining a focus on exports is necessary as it tests efficiency and drives growth.

Emphasis on Diverse Sectors:

• A multi-dimensional strategy is crucial for development, emphasizing exports, services, manufacturing, and agriculture.
• Identifying “sunrise” industries, such as the food processing industry, can provide significant benefits due to its labor-intensive nature, support for agriculture, and export potential.
• The Russia-Ukraine war highlighted the importance of self-sufficiency in critical imports, such as manufacturing chips.
• However, efficient import substitution is key, avoiding inefficient protectionist measures.

Job Creation and Technological Change:

• Creating adequate jobs is a critical issue. Technological advancements, including Artificial Intelligence (AI), General AI, and machine learning, are reshaping the labor market, potentially reducing labor absorption per unit of output.
• The distinction between new technology and previous innovations raises concerns about jobless growth.
• Absorbing new technology while developing sectors that ensure job growth is essential.
• This requires substantial skill development and a balanced mix of employment-friendly sectors.

Equity and Inclusive Growth:

• Equity considerations are increasingly important. The benefits of growth must be equitably distributed.
• Evidence shows a declining poverty ratio in India, with extreme poverty falling below the three percent threshold.
• Recent data indicates a slight reduction in the Gini coefficient, suggesting decreasing inequality.
• Ensuring rapid poverty reduction and maintaining social safety nets, such as subsidized food grains, are crucial. Balancing growth and equity is essential, as one cannot be prioritized over the other without compromising long-term sustainability.
• Public expenditure on health and education, both in terms of quantity and quality, is vital for equitable growth.

Conclusion:

• India’s development strategy should be multi-dimensional. Stimulating growth through increased investment rates, emphasizing diverse sectors like manufacturing, services, and exports, absorbing new technologies, and promoting employment-friendly sectors are key components.
• The challenge of job creation remains significant, but with a balanced and inclusive approach, India can strive towards its goal of becoming a developed nation by 2047.

PYQ: Define potential GDP and explain its determinants. What are the factors that have been inhibiting India from realizing its potential GDP? (UPSC CSE (M) GS-3 2020)

Practice Question:  In light of recent developments both domestically and internationally, discuss the key strategies and challenges India must address to achieve its goal of becoming a developed country by 2047. (250 words/15 m)

(Source: Indian Express; Section: The Editorial Page; Page: 12)

 

2. Poverty debate in numbers

Topic: GS3 – Indian Economy GS1 – Society – Poverty and developmental Issues

Context:

The release of the factsheet of the Household Consumption Expenditure Survey (HCES) has sparked significant debate, with various stakeholders attempting to shape narratives about the trends and causalities in poverty reduction. The primary focus has been on whether poverty reduction rates have been higher under the National Democratic Alliance (NDA) or the United Progressive Alliance (UPA). Differences in poverty estimates arise from the reference periods for data collection, the poverty lines considered, and the price indices used.

What are the Highlights of the Recent Household Consumption Expenditure Survey?

•  The Household Consumption Expenditure Survey (HCES) is conducted by the National Statistical Office (NSO) every 5 years.
• It is designed to collect information on the consumption of goods and services by households.
• The data collected in HCES is also utilized for deriving various other macroeconomic indicators such as Gross Domestic Product (GDP), poverty rates, and Consumer Price Inflation (CPI).
• NITI Aayog has stated that the latest consumer expenditure survey indicated that poverty has come down to 5% in the country.
• The findings of the last HCES, conducted in 2017-18 were not released after the government cited “data quality” issues.

Information Generated:

• Provides information on the typical spending on both goods (including food and non-food items) and services.
• Additionally, assists in calculating estimates for household Monthly Per Capita Consumer Expenditure (MPCE) and analyzing the distribution of households and individuals across different MPCE categories.

Highlights of the Recent Survey:

• The estimates of average monthly per capita consumption expenditure were generated without imputing the value figures of the items received free by the households through various social welfare programmes such as Pradhan Mantri Garib Kalyan Yojana.
• Increase in MPCE: It reveals a 33.5% increase in MPCE in urban households since 2011-12, reaching ₹3,510, while rural India’s MPCE increased by 40.42% to ₹2,008. In 2022-23, 46% of rural household expenditure and 39% of urban household expenditure were on food items.

• Distribution of MPCE by Population Percentiles: The bottom 5% of India’s rural population, ranked by MPCE, has an average MPCE of Rs. 1,373 while it is Rs. 2,001 for the same category of population in the urban areas. The top 5% of India’s rural and urban population, ranked by MPCE, has an average MPCE of Rs. 10,501 and Rs. 20,824, respectively.
• State-wise MPCE Variations: Sikkim has the highest MPCE in both rural (₹7,731) and urban areas (₹12,105), while Chhattisgarh has the lowest with ₹2,466 for rural households and ₹4,483 for urban households. The rural-urban difference in average MPCE, among the states is the highest in Meghalaya (83%) followed by Chhattisgarh (82%).
• UT-wise MPCE Variations: Among the UTs, MPCE is the highest in Chandigarh (Rural Rs. 7,467 and Urban Rs. 12,575), whereas, it is the lowest in Ladakh (Rs. 4,035) and Lakshadweep (Rs. 5,475) for rural and urban areas respectively.
• Food Spending Trends: Since the 1999-2000 survey, the share of expenditure on food has gradually declined and the share of non-food items has increased for both urban and rural households. A decline in food spending is understood as an increase in incomes, which then means having more money for other expenditures like on medical, clothing, education, conveyance, durables, fuel, entertainment, among other things.
• The recent survey result showed that the share of cereals and pulses within overall food consumption expenditure has been reducing, both in rural and urban households.
• Among the non-food items, the share of spending on conveyance was the highest.
• Till 2022-23, fuel and light used to see the highest consumption spending among the non-food items.

Data Collection Methodologies:

• Since the inception of HCES, the National Sample Survey Office (NSSO) has employed a 30-day recall period, known as the Uniform Reference Period (URP), to collect consumption data for all items.
• In 1983, a 365-day recall period was introduced for durables, termed the Mixed Reference Period (MRP).
• Significant discrepancies between aggregate consumption expenditure of NSS and national accounts led to the introduction of a seven-day recall period in addition to 30 days and 365 days, creating the Modified Mixed Reference Period (MMRP).
• In 2011-12, NSSO adopted MMRP alongside URP and MRP. The latest HCES fact sheet indicates a shift to MMRP.

Poverty Line Estimation:

• Official estimates of the poverty line and poverty ratio were derived using URP data until 2004-05, based on the Lakdawala Committee’s guidelines, which were linked to specific calorie intakes.
• Dissatisfaction with this approach arose due to the absence of concrete evidence linking calorie intake with health outcomes.
• Consequently, the Tendulkar Committee moved away from anchoring the poverty line to a calorie norm.
• The Tendulkar Committee recommended shifting to MMRP for more accurate reporting, suggesting that MRP equivalent per capita expenditure be adjusted to MMRP.

Reference Periods and Reporting Accuracy:

• A comparison of average consumption expenditure using the three reference periods shows that MMRP improves reporting due to better recall.
• The Planning Commission’s subsequent reports used MRP-based data for poverty estimation but did not create official estimates based on MMRP for 2011-12.
• In 2012, another expert group under C Rangarajan suggested that the poverty line should consider normative levels of nourishment, clothing, house rent, conveyance, and education, along with other non-food expenses.
• The poverty lines estimated by this committee were higher than those of the Tendulkar Committee, partly due to MMRP-based consumption data.

Use of Consumer Price Index (CPI):

• Researchers often use the Consumer Price Index (CPI) to update the base year poverty line. For example, SBI research utilized CPI to find a substantial decrease in the poverty rate from 25.7% and 13.7% in 2011-12 to 7.2% and 4.6% in 2022-23 for rural and urban areas, respectively.
• NITI Aayog supported this poverty figure being below 5% in India for 2022-23. However, this methodology is questionable as it updates an MRP-based poverty line with consumption data based on MMRP, leading to an underestimation of poverty in 2022-23.
• Rangarajan and Mahendra Dev’s use of CPI to update MMRP-based poverty lines for 2011-12 reports a reduction in the headcount ratio from 30.9% and 26.4% in rural and urban areas in 2011-12 to 12.3% and 8% in 2022-23, respectively.

International Poverty Line Comparison:

• Using the international poverty line of $1.90 at 2011 prices, Surjit Bhalla and Karan Bhasin claimed that the percentage of poor in rural and urban areas is 2.5% and 1.0%, respectively.
• This method avoids temporal comparability issues since both estimates apply a global poverty line adjusted for inflation to MMRP-based expenditure data.
• However, obtaining comparable poverty estimates for years without MMRP-based data remains challenging.

Data Collection and Comparability Issues:

• The 2022-23 survey employs three distinct questionnaires for food items, consumables, and services items, and durable goods, instead of a single questionnaire used previously.
• Additionally, there is a shift from single-visit to multiple-visits for data collection, impacting response quality. The increase in non-food items of consumption in 2022-23 could partly result from better reporting.
• Despite acknowledging the NSSO’s efforts for better data collection, the loss of temporal comparability is a concern. Scholars claiming faster poverty reduction under NDA than UPA dismiss issues of non-comparability with earlier rounds.

Poverty Reduction Trends:

• The fall in the percentage of poor from 37.2% to 21.9% during 2004-2011, an annual decline of 2.2 percentage points, is higher than the annual decline of 1.6 percentage points during 2011-22, from 21.9% to about 6%.
• However, declaring greater poverty reduction during the UPA period than the NDA is premature since the data points do not align with their governance periods.
• Additionally, as India nears eliminating poverty, reducing poverty by a certain percentage point becomes increasingly challenging. The impact of anti-poverty measures may not be immediate.

Conclusion:

• While both the UPA and NDA have made strides in poverty reduction, it is difficult to attribute success to one over the other definitively.
• Temporal comparability issues and the challenges in reducing poverty as it approaches elimination complicate straightforward comparisons.
• Both governments must focus on sustained, equitable poverty reduction measures to achieve long-term goals.

PYQ: In a given year in India, official poverty lines are higher in some States than in others because (2019) (a) poverty rates vary from State to State (b) price levels vary from State to State (c) Gross State Product varies from State to State (d) quality of public distribution varies from State to State Ans: (b)

Practice Question:  Analyze the key issues and debates surrounding the Household Consumption Expenditure Survey (HCES) in India, particularly focusing on the methodologies used for data collection and poverty estimation. Discuss the implications of these methodologies on the reported poverty reduction trends under different governments. (250 words/15 m)

(Source: Indian Express; Section: The Ideas Page; Page: 13)