As we enter 2024, there is optimism on the macro-economic front. The NSO has estimated GDP growth for 2023-24 at 7.3 per cent in its first advance estimates. The Sensex is booming, having crossed the 72,000 mark first time in history. Foreign exchange reserves have crossed $620 billion as on December 22, 2023. Inflation has been contained within the RBI’s desirable band of 4 plus/minus 2 per cent. All this points to India being the best performer among G20 countries in 2023. And as per IMF projections, India is likely to outperform most G20 countries even in 2024.
All this cannot be achieved without policy playing a critical role. In this context, the RBI Governor and his team, along with the Ministry of Finance, deserve credit for having worked in tandem to spur growth, contain inflation and provide financial stability. No wonder, RBI Governor Shaktikanta Das has been honoured with the Governor of the Year award at the Central Banking Awards in London.
However, this does not mean that all is well on all fronts. The RBI Governor himself has flagged increasing risks in unsecured loans in the banking industry. Many bankers keep cribbing about stifling regulation. Politically, opposition parties point to high unemployment, high inflation, loss of democratic values, and so on. Yet, the juggernaut of the Narendra Modi government keeps moving forward with renewed confidence towards the 2024 parliamentary elections. The Ram temple in Ayodhya may provide extra steam during the elections.
But as dispassionate economic analysts, we look at the performance of the Modi government over 10 years and compare it with the preceding 10 years of the UPA government. This may give us an indication of where India is headed economically over the next decade or so. Looking at the GDP growth, we find that the average annual growth during the UPA period (2004-05 to 2013-14) was a notch higher at 6.8 per cent than during the Modi government at 5.8 per cent (from 2014-15 to 2023-24). This is as per the latest revised series data with the 2011-12 base. However, it is worth noting that the GDP growth stood at 7.7 per cent during the UPA period as per the older series (with 2004-05 base at factor cost). This was revised downwards to 6.8 per cent in 2018 when the older series was replaced with the new one with a 2011-12 base at market prices. The agri-GDP growth was 3.5 per cent during the UPA period, and marginally higher at 3.7 per cent under the Modi government. Agricultural performance is critical for the well-being of the masses as it still engages about 45 per cent of the workforce, and provides basic food security to the country.
However, the record of the UPA government was not good on the inflation front. The average annual inflation (measured by the Consumer Price Index, CPI) was 8.1 per cent during the UPA period compared to 5.1 per cent during the Modi period. In terms of food inflation, the UPA record was even worse at 9.2 per cent compared to 4.9 per cent during the Modi period.
But GDP growth and inflation are only two major macro-variables to gauge economic performance. For us, the litmus test is how the two governments have done in terms of reducing poverty, which should be the first and foremost task of any government. The data on income poverty from the World Bank is available from 1977, unfortunately, not on a continuous yearly basis. Measured in terms of the World Bank’s definition of extreme poverty at $2.15/day/per capita (in 2017 constant purchasing power parity, PPP), India’s headcount poverty level declined from 63.11 per cent to 39.91 per cent between 1977 and 2004. But despite this, the absolute population living in extreme poverty increased from 411 million to 453 million due to rapid population growth (2.1 per cent).
As population growth was contained, absolute poverty numbers also came down in subsequent years. Interpolating the discrete poverty data as shown in the infographics, it would be safe to say that during the UPA-1 period, 2004-05 to 2008-09 (interpolated), extreme poverty declined by 1.12 per cent per annum (from 39.9 per cent to about 34.3 per cent). But during UPA-II, 2009-10 to 2013-14 (interpolated), poverty declined faster at 2.46 per cent per annum (32.9 per cent to 20.6 per cent). During the Modi-I period, poverty fell but at a declining rate, from about 19.7 per cent in 2014-15 (interpolated) to 11.1 per cent in 2018-19, that is, a 1.72 per cent decline per year. Surprisingly, during the Modi-II period, 2019-20 to 2023-24, poverty declined very meagrely at 0.3 per cent per annum. Covid-19 seems to have given a big shock and even in 2023, India had the highest number of people (160 million) in extreme poverty, marginally up from 152 million in 2018.
The stunted decline in headcount poverty during the Modi-II period is not only puzzling but also concerning. It is also corroborated by the decline in the rate of growth in real farm wages for men. During the two terms of the UPA, real farm wages grew by 4.1 per cent compared to just 1.3 per cent during the Modi government’s 10-year period. However, the UNDP’s Multidimensional Poverty Index (MPI), computed using 10 indicators under three dimensions — health, education and standard of living — halved from 55.1 per cent to 27.7 per cent between 2005-06 to 2015-16. That means about 271 million people moved out of poverty.
Similarly, NITI Aayog’s national MPI (similar to UNDP’s MPI with 12 indicators) dropped from 24.85 per cent to 14.96 per cent between 2015-16 and 2019-21, indicating that about 135 million people were lifted out of multi-dimensional poverty. It was largely a result of improved access to sanitation, schooling, cooking fuel, etc. While this is very much welcome, it is crucial to address income poverty which is still very high and has remained defiant over the last five years. For that, policy needs to focus on spurring employment-intensive growth. Skill formation in rural areas to enable people to move out of agriculture to higher productivity jobs in urban areas, coupled with direct income transfers to the most vulnerable (antyodaya) can help.
Gulati is Distinguished Professor and Jose is Research Fellow at ICRIER. Views are personal
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Income poverty, which has remained defiantly high for the last five years, must be fixed
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08.01.2024
As we enter 2024, there is optimism on the macro-economic front. The NSO has estimated GDP growth for 2023-24 at 7.3 per cent in its first advance estimates. The Sensex is booming, having crossed the 72,000 mark first time in history. Foreign exchange reserves have crossed $620 billion as on December 22, 2023. Inflation has been contained within the RBI’s desirable band of 4 plus/minus 2 per cent. All this points to India being the best performer among G20 countries in 2023. And as per IMF projections, India is likely to outperform most G20 countries even in 2024.
All this cannot be achieved without policy playing a critical role. In this context, the RBI Governor and his team, along with the Ministry of Finance, deserve credit for having worked in tandem to spur growth, contain inflation and provide financial stability. No wonder, RBI Governor Shaktikanta Das has been honoured with the Governor of the Year award at the Central Banking Awards in London.
However, this does not mean that all is well on all fronts. The RBI Governor himself has flagged increasing risks in unsecured loans in the banking industry. Many bankers keep cribbing about stifling regulation. Politically, opposition parties point to high unemployment, high inflation, loss of democratic values, and so on. Yet, the juggernaut of the Narendra Modi government keeps moving forward with renewed confidence towards the 2024 parliamentary elections. The Ram temple in Ayodhya may provide extra steam during the elections.
But as dispassionate economic analysts, we look at the performance of the Modi government over 10 years and compare it with the preceding 10 years of the UPA government. This may give us an indication of where India is headed economically over the........
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