The Household Consumption Expenditure Survey (HCES) conducted by the National Sample Survey Office (NSSO), and designed to collect information on consumption and expenditure of households on goods and services, was released by the Ministry of Statistics & Programme Implementation (MoSPI) in June 2024. Drawing from this data, a report ‘Nutritional Intake in India’ was released in July 2025.

The HCES estimates the monthly per capita consumption expenditure (MPCE) from the total value of monthly consumption of goods and services of the household divided by the number of members of the household, and its distribution among households and individuals. It gives a break up of expenditure by commodity group at the national and state level. It has two sets of estimates – one without factoring in the value of items (grains, edible oil, pulses, laptops or personal computers, bicycles, uniforms, footwear etc) received free of cost through various social welfare programmes, and the other with the imputed values that includes these items. Pradhan Mantri Jan Arogya Yojana (PM-JAY) and education related information has not been imputed here because of the apparent complexity of measurement.

Proportion of expenditure on food in a household is considered as an indicator of poverty. A decline in food spending is generally understood as an increase in incomes, which then means having more money for other expenditures like on medical, clothing, education, conveyance, durables, fuel and entertainment, among other things.  Food as a share of total consumer expenditure is less than 10% in many economies. In India, it continues to remain high overall. In rural households, the share of food in total consumption expenditure varies from 40% (Kerala) to 53% (Assam) (mean 47%), and in the urban households from 36% (Maharashtra) to 49% (Bihar) (mean 40%).

Based on the HCES, the government, through the NITI Aayog and other bodies, has declared that less than 5% of Indians are now expected to be below the poverty line, that welfare, inequality and poverty have improved since 2011-12, and that the nutritional intake is seen to have generally improved. Going forward, if policies have to be evidence-based, then all of these assertions have to be revisited.

Nutritional Intake Data

The report—‘Nutritional Intake in India’, estimates per capita and per consumer unit consumption of calories, protein, and fat. This report has apparently been compiled to ensure that adequate nutrition can be ensured for citizens, particularly those who are economically vulnerable, to plan welfare schemes and to compute poverty related calculations, for national and international comparisons. It gives an idea of nutrient intake and its source. It therefore gives an idea of the energy, protein and fat consumption of each household which can then be extrapolated to individuals. To date, five reports on “Nutrition Intake in India’ have been published[1].

Key findings on nutrition

As can be seen in Table 1 and 2, there is a similar pattern in expenditure on consumption of various categories of food items, the highest proportion being spent on consumption of beverages and processed food (21% in rural areas and 28% in urban areas).These changes in the composition of household expenditure are attributed to changes in household demand and improved infrastructure, storage, and transportation, which have expanded the markets for perishable items such as fresh fruits, milk & milk products, eggs, fish, and meat, making them more accessible and affordable across all regions of India.

The recorded foods consumed by the household are converted into the equivalent amounts of energy, protein and fat based on a Nutrition Conversion Table prepared by a committee constituted by MoSPI. households.

The intakes as per the report are:

Average Calorie Intake:

• • • Rural: 2,212 kcal
    • Urban: 2,240 kcal

Protein (grams):

• • • Rural: 61.8
    • Urban: 63.4

Fat (grams):

• • • Rural: 60.4
    • Urban: 69.8

However, the actual intake of nutrients depends on how these foods are processed and/or cooked in the surveyed households.

For example, if a larger proportion of calories are derived from simple carbohydrates (all forms of sugar) or refined carbohydrates (grains, root vegetables and some pulses and legumes with the fibre and bran being removed) will quickly increase blood sugar levels. then it can lead to an increased risk of obesity and diabetes. Therefore calories from simple sugars and refined complex carbohydrates should be minimised or stopped. But merely computing the total number of calories without breaking them down into their source does not truly indicate the nutritive value of food consumed.

The urban and rural data for different states (Table 1 and 2), gives an idea of how different states facilitate different foods and dietary diversity. For instance, Kerala, West Bengal, Assam are among the top spenders on animal sources of protein while MP and Rajasthan are among the lowest. Similarly Haryana, MP, Rajasthan, Punjab are among the top spenders on milk and milk products while Kerala, West Bengal and Assam are among the lowest consumers of milk and milk products. These differences are related to geographical location, on what kinds of food is grown locally and is easily available.

For instance Kerala, West Bengal and Assam are close to large rivers and /or sea. Therefore fish consumption is very high. On the other hand, cattle and other livestock rearing is common in the Gangetic plains of North India. So Haryana, UP, Rajasthan and MP are among the top spenders for milk and milk products. Policy makers need to examine these data in the light of local contexts and should ensure that dietary diversity is at the heart of all welfare schemes related to food and nutrition such as the food and take home rations (THR) provided in anganwadis, public distribution system (PDS), mid-day meals and so on. Policy makers need to use these data to join the dots so that the schemes and programs are interconnected and comprehensive.

For example, consumption expenditure could be compared with data on the prevalence of anemia, stunting, underweight and other deficiencies. Such an exercise will contribute towards development of meaningful and effective programs that make use of local diversity in foods and also cater to the local tastes. Instead, the government chooses to take short cuts that benefit multi-national corporations such as universal fortification of rice with iron.

Energy/calories

The energy consumption of a man of average height and weight doing sedentary work is considered as one Consumption unit (CU) and equivalent to 2400 kcal. If the same man does moderate and heavy work, the CU would increase. Women and children are considered to have less CU than this average man. As per Table 3, the average daily per capita and per consumer unit intake of calorie protein and fat has not changed much between the previous survey (2022-23) and this (2023-24).

*Consumer unit is a unit used to measure the energy requirement of a group of persons of different sectors, gender and age-groups

The HCES assumes that animal products like milk, meat, fish and egg, and plant foods like pulses, oilseeds and nuts are all good sources of protein, but both these groups cannot be held at par. Plant based foods can be deficient in certain essential amino acids.

In the rural sector the share of cereals ranges between 34-55% in all major States across both periods except Kerala, where it is around 25-26%. In the urban sector the share of cereals is 24-25% in Kerala and 31-51% in all other major States.

Protein

With regard to proteins, the report claims that cereals continue to be the single largest source of protein for households with a share of about 46-47% for rural India and about 39% for urban India,  although their contribution to protein has come down and that from pulses, dairy and meat/fish/poultry going up.

As can be seen in Figures 2 and 3, most of the protein source are cheap quality from cereal, unlike the highly bioavailable animal source foods such as meat, milk and milk products, eggs, fish, poultry which contribute no more than 20% of the total intake in rural areas and 27% in urban areas. India, thus has a long way to go before it has access to the kind of proteins (and other nutrients) that enable the best possible heights and weights as also improvement of other nutritional indicators. Cereals are only a moderate source of protein as they contain about 10% protein. Rice contains less protein (7%) than wheat (approximately 10%) and other cereals. Leafy vegetables, fruits, roots, tubers are generally poor sources of protein as they contain less than 2% protein.

For instance, it is assumed in the report, that soya bean is the richest source of protein, however these proteins are incomplete, with poor bioavailability and being indigestible, requiring a lot of processing to improve digestibility. This processing can, however, contribute to denaturing of the proteins.

The other sources of proteins have poor bioavailability and calculations have to factor that in. It is also important to calculate intake in grams per kg body weight with due consideration for age, activity and physiological status.

Of the 20 amino acids that the body requires, it cannot synthesise 9 (essential) AA which must be consumed in the diet. The bioavailability (ability to utilise) is more from eggs, milk and meat. Proteins help to build and repair tissues. Usual recommended protein is 0.8 gm per kilogram body weight or 10-15% of total calories but some studies show that young children, adolescents, pregnant/lactating women and senior citizens may need more from 1.2 -1.7 gm/day. Even if you consume proteins from plant sources, at least 50% of total intake should come from animal sources (milk, dairy, eggs, meat, fish or chicken) or 50:50. If the ASF proportion drops (40 ASF: 60 PSF), chances of developing deficiencies are higher.

Fats

Fats are important for various functions of many organs. Fats can contribute around 25-50% of the calorie requirement depending on age, activity levels etc. The quality of fats need to be considered with trans fats available in ultra-processed foods being of particular concern.

Fat is an important component of diet and supports a number of functions in the body. Fat is a concentrated source of energy and per unit weight, it supplies more than twice the energy of either protein or carbohydrate. It also imparts palatability to a diet and retards the pace of emptying of the stomach. Presence of fat in the diet is important for the absorption of fat-soluble vitamins like Vitamin A and Carotene.

Packaged foods

It is recognised that access to healthy diets is challenging in low income settings, and when there is high food insecurity. Processed foods, cereals and sugars (as seen in commercially produced beverages) contribute both to under-nutrition but also to non-communicable diseases (NCDs) such as obesity, diabetes, hypertension, cardiovascular disease, cancer etc. It is therefore concerning that the report downplays this and instead makes it appear like protein from cereal has reduced while protein from other sources has gone up. Given the increased expenditure (above all other foods) towards beverages and processed foods, there would need to be more policy interventions to control this.

According to Kapoor et al. (2024), a 1 standard deviation increase from mean of diversity was associated with approximately 10% lower prevalence of anaemia in women (15-49 years). They found that the prevalence of anaemia among children (6 to 59 months) and women (15 to 49 years) is inversely associated with the dietary diversity of iron sources as measured by the Shannon Diversity Index. This relationship was observed across state/UTs and the NSS regions. They recommend that dietary diversity plays an important policy role in addressing anaemia – “an implication of this is that economic growth and development, which improve the dietary diversity of the household, could play an instrumental role in reducing the prevalence of anaemia among children and women.’ They conclude that although universal fortification in an attempt to improve iron intake and reduce anaemia in India, has widespread appeal yet it has limited impact. This echoes what doctors and several food rights groups have been saying – that fortification is not just useless, but downright harmful, and importantly that policies that promote dietary diversity at the household level, apart from general economic growth and improved access and affordability of diverse food items “through advancements in supply chain and logistics” as also “traditional practices and food habits at highly localized levels” would be better policy.

We need to also recognise that eggs are systematically denied from the mid-day meals in many states across the country. Cattle slaughter bans have made cheap nutrient dense foods inaccessible to many. So, on the one hand, the government claims to celebrate diversity while systematically erasing these, by enabling gory and macabre lynchings in the name of cow protection. The sources of micronutrients varies within states. For instance, Kerala with its acceptance of all animal source foods may have better levels of micronutrients as compared to states which are expected to make up their nutrient requirements from cereals. To meet requirements, they would have to consume increased quantities of cereals putting them at increased risk of non-communicable diseases. Children are further more likely to be stunted (and obese) if they do not have access to animal source foods. Unless these distinctions are made, a false narrative of all sources being equivalent will be created which is dangerous.

Concerns about the HCES, and some suggestions

This Household Consumption Expenditure Survey  (HCES) is different in methodology (including sampling) from the earlier Household Consumer Expenditure Survey (CES) last conducted in 2011-12, and therefore the two are not comparable – so the claim that India’s poverty has declined to below 5% doesn’t hold water. Secondly, the NITI Aayog has made no effort to even determine an official poverty line or re-examine the categories of urban or rural, last defined in the Census 2001. There are concerns that there is a higher representation of well-off groups in the current sample, giving higher consumption expenditure results and an active bias that excludes poor households. Imputed cost for items received free of cost through social welfare programs were not calculated earlier, so that can also artificially hike up the current MCPE estimates.

According to the National Accounts Statistics (NAC), household consumption share is dropping since 2016 with a drop in savings and rise in debt. Questions are being raised as to how it is possible for expenditures to rise when jobs are faltering, youth unemployment is doubling or tripling and the economy is slowing down.

The HCES survey for the year 2017-18, which revealed a decline in average per capita expenditure and increase in poverty headcount ratio, was conveniently junked by the government as “unreliable”. Before that, the survey was conducted in 2011–12. Hence, no consumer expenditure data was available for over a decade to assess the impact of the economic slowdown, demonetisation, the introduction of the Goods and Services Tax (GST), Covid-19 and lockdowns etc. and how many people above the poverty line have been pushed below.

The economist S. Subramanian argues that India’s abysmally low ranking on the  Global Hunger Index (GHI) which is drawn from under nutrition and <5 mortality indicators is not in keeping with what is being projected as a thriving economy.

The earlier sampling identified villages and urban blocks to select households to be surveyed. However the HCES strategy ensures that a certain proportion of the rural sample is from the villages close to the urban areas. As Anand (2024) writes –“It is safe to assume that villages closer to the city centre or the district headquarters would be relatively more affluent than the remote ones” also “While the survey design does not explicitly exclude the poorest from the sample, it reduces the probability of the poor making it to the sample”. If the extremely poor households are not a part of the sample, the monthly per capita expenditure estimates would be higher by design.  Standardization of HCES across countries and better understanding of the strengths and limitations of the data are also crucial.

In the context of the food consumption survey, there are several limitations to the HCES, most notably the difficulty of estimating the intra-household allocation of foods and therefore of quantifying the actual food intake of individual household members. Research is needed to better understand the strengths and the weaknesses of HCES data when used to assess and plan intakes at the household and individual levels Dietary surveys are widely used to assess food and nutrient intakes at the population or individual level. This helps to identify nutrient gaps as well as the risks of inadequate or excessive intakes to plan programs or policies. Several methods and tools exist to assess dietary intake, but the complexity and cost of dietary surveys often discourage their widespread use in developing countries, especially on an ongoing basis. Therefore, very few countries have reliable dietary data.  HCES, routinely conducted on a nationally representative sample, can be taken as proxy to plan nutrition related interventions. Whereas other methods can give individual level consumption patterns, HCES is limited to the household. Therefore, ideally, the HCES should be bolstered by other more accurate individual level data on food consumption. HCES therefore may not accurately capture individual consumption patterns due to factors like recall bias, differences in survey design across countries, and the challenges of tracking food consumed outside the home.

Standard measurements of individual consumption use the adult male as reference. For example, energy requirements of a non-pregnant or non-lactating woman is 0.8 and 0.6 for a child under five years of age. Using an estimate of the energy needs of a typical adult male (typically 3,000 kcal/day), the total household energy requirement can be estimated based on the number of Adult Male Equivalent units (AMEs) in the household. However, individual requirements can vary based on age, sex, physiological status, and (ideally) physical activity of each family member.

One method that could provide useful information is a comparison of nutritional data collected from the same household using multiple methods such as 24-hour recalls for each member of the household, as well as administering a standard HCES to determine household food consumption. Data at multiple time points to cover seasonal variations and other fluctuations in consumption would also be helpful. The more unwieldy assessments are done on smaller but representative samples.

HCES can also be difficult to compare across countries because of variations in period of recall, whether food has been collected for acquisition or consumption, mode of acquisition etc. Some of the procured foods listed in the HCES may be listed as fortified and this may or may not be factored into calculations. Further, additives, salt, sugar, trans fats etc. added to these may not be disclosed, and therefore difficult to measure or assess.

(The author is a public health doctor and researcher)

[1] Reports based on NSS (National Statistical Survey)’s 50th round (1993-94), 55th round (1999-2000), 61st round (2004-05), 66th round (2009-10) and 68th.

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Religious Indoctrination Through Midday Meals

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A recent article by noted economist Indira Hirway, titled “The Hoax of Decline in Poverty in India” and published in The Wire on July 8, 2025, casts serious doubt on official claims of a dramatic fall in poverty rates in India. Hirway critiques the recent estimates by economists C. Rangarajan and S. Mahendra Dev, which assert that extreme poverty declined from 29.5% in 2011–12 to 9.5% in 2022–23, and further to 4.9% in 2023–24—a near 25 percentage-point drop over a decade.

According to the World Bank, using the USD 2.15 per day (2017 Purchasing Power Parity – PPP) international poverty line, extreme poverty in India reportedly fell from 16.2% to 2.3%, translating into around 170 million people lifted out of poverty. However, Hirway contends that this statistical narrative is disconnected from the lived reality of millions of Indians.

“If only 4.9% of people are poor in India, why do 35% of children under five remain stunted, 18.5% wasted, and millions dependent on free food?” she asks, challenging the coherence of official data. She also points out that India is ranked 105th out of 127 countries on the Global Hunger Index, with an “alarming” score of 27.3, and that over 800 million people continue to rely on free grain distributions.

Hirway argues that poverty measurement itself is flawed. She criticizes the Rangarajan Committee’s poverty lines—₹64.66/day for rural areas and ₹91.2/day for urban—as grossly inadequate. “These thresholds are too low to measure meaningful deprivation,” she writes, adding that the World Bank’s USD 2.15 line is also unsuitable for India, a lower-middle-income country where the more appropriate threshold would be USD 3.65/day.

“India’s poverty statistics are not credible,” Hirway states bluntly. “It is time for the country to overhaul its poverty measurement and adopt a more realistic understanding of deprivation and vulnerability.” She notes that 20% of the population is still illiterate, 45% have not studied beyond primary school, and over 90% of the workforce remains informal, lacking any form of job security or social protection.

While acknowledging that economic growth and welfare schemes like food subsidies have played a role, Hirway warns against complacency. “Declaring victory over poverty on the basis of faulty lines hides the structural problems that keep people poor,” she writes.

In conclusion, Hirway calls for a reassessment of India’s poverty metrics: “Poverty is a multidimensional phenomenon. A narrow income-based line cannot capture the lived experience of millions. We must measure poverty in ways that reflect health, education, nutrition, and basic dignity.”

Her article serves as a sobering counterpoint to the optimistic projections of rapid poverty eradication, and a reminder that statistical gains do not always reflect the ground reality of deprivation and inequality in India.

Courtesy: CounterView

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In 2022-23, the year in which this coastal panchayat won the second prize in the ‘poverty-free and enhanced livelihoods’ category of the Deen Dayal Upadhyay Panchayat Satat Vikas Puraskar or the National Panchayat Awards, Fathima’s was one of three women-led enterprises which received Rs 5 lakhs cumulatively to invest in their business; one of the other grantees, an SHG, expanded their paper bag unit.

“After Covid, our focus was on livelihoods and poverty alleviation since many people had lost their jobs during the pandemic,” Bineesha Mustafa, president of the Perumpadappa panchayat, said. “Some homemakers were interested in working outside the home, so we helped them start businesses as well.”

Since then, 24 Gulf-returnees have also been identified to receive Rs 31 lakhs in total under the state government’s Kudumbashree Mission to start new businesses; some of them now rent out boats for tourism.

Fathima’s immediate goal is to buy a generator for her factory and about 25 freezers that she can supply to shops to store Bluberry’s products. Stocking her merchandise in existing freezers in shops is affecting her profits. These new purchases would cost her Rs 10 lakh, and she plans to apply for a subsidy from the panchayat again this year to cover part of the costs.

According to Sunil M, Vice Chairman of the panchayat’s Planning Board, “Panchayats can provide subsidies of up to 40% for women-led self-employment ventures,” like Fatima’s ice cream factory, which she now manages herself after the exit of her two male business partners. “We got Rs 3 lakh subsidy from the panchayat, and another Rs 1 lakh loan from the bank. This has covered 10% of our cost so far,” she says. The subsidy is structured so that entrepreneurs receive it only when they repay their bank loans, ensuring “the panchayat’s money doesn’t get wasted in loss-making ventures”, according to Village Extension Officer, Roopesh C.

During the award-winning year, the panchayat spent Rs 2.7 crore out of its 4 crore annual budget on poverty alleviation, focusing on livelihoods. It is for this effort that Mustafa received the award from President Droupadi Murmu in New Delhi in December 2024.

Sunil explained that the panchayat’s recognitions are not due to one single project, but rather the consistent and efficient implementation of different schemes and said “any panchayat can do this”. “Only if local officials of all the departments cooperate,” he added, saying, “In Perumpadappa, we have a good team of administration officers to implement whatever initiatives we decide, and it is our biggest advantage.”

Groundwork for growth

At Perumpadappa panchayat – home to approximately 33,000 people, spread across nearly 7,600 households – poverty alleviation is not just about helping people make money, it’s about helping them save, reclaim and rebuild.

The panchayat’s main initiatives that year, apart from funding women entrepreneurs, included subsidising farming and livestock management, housing subsidies for landed Schedule Caste families, and healthcare, including ensuring access to medicines for the chronically ill in need.

Perumbadappu’s achievements are a result of the long, hard work that went into their five-year plan that began in 2019, which prioritised housing, drinking water and farming. Of the 420 homes that were identified for the housing subsidy due to their dilapidated conditions, 300 have already benefited. Drinking water has been supplied to all households through the Jal Jeevan Mission, says Sunil. And farming and livestock remain the panchayat’s main ‘productive’ sectors.

The Kerala government hasn’t given instructions for a fresh five-year plan in 2024, but Perumpadappa has continued to prepare its annual Gram Panchayat Development Plan in the spirit that it is intended, with stakeholder inputs and a current survey.

Each year, four standing committees — made up of ward members — draft the budget according to the government norms. The draft is reviewed by the panchayat’s planning committee, which includes implementing officers from line departments, i.e the administration.

Once this internal review is done, the draft budget is taken to the people through the gram sabhas.

In Kerala, gram sabhas are held at the ward level due to high population density. Participation in gram sabhas can vary. “Some wards have more participants than required, whereas in a few wards we have had to reschedule gram sabhas because of low turnout (If the quorum of 10% of voters isn’t met),” said Sajan C Jacob, Secretary, Perumpadappa Panchayat.

To ensure consensus, two representatives from each ward are chosen to attend the annual development seminar, where the budget is finalised.

Currently, one major roadblock in effective planning is the panchayat’s lack of updated digital records of local administrative data. “Sometimes the data is not clear, and only during implementation do we realise that the project isn’t feasible and has to be revised,” says Sunil.

To fix the gap, this year the panchayat has allocated Rs 12 lakh to hire an external agency to do a comprehensive survey. “The idea is to have all of the panchayat’s data available online, including taxation data. We will also give an Annual Maintenance Contract to the agency for five years to update the data,” says Sunil. He believes this will help the panchayat plan schemes better, raise more revenue, and provide services to more people.

Farm to pharmacy

In 2022-23 alone, according to a press note from the panchayat, they spent Rs 70 lakh on healthcare, including medicine supply for patients below the poverty line (especially kidney patients) and covering the salaries of one additional shift doctor and pharmacist at the PHC and a palliative nurse at the panchayat’s palliative care unit.

What stands out is a creative balancing of funds from the centre, state and the panchayat’s revenues to meet the state’s mandates as well as community needs.

“In 2022-23, we used mainly state grants, and a small part of the central grants, for the poverty eradication programmes,” says Sunil, with the Centre’s tied funds going to cleanliness and drinking water, and untied funds going towards construction of the new panchayat building, in line with their theme for the year which was infrastructure development. This project also used most of the panchayat’s own revenue that year, which comes mainly through taxes.

The year the panchayat was able to subsidise housing for 40 families, with Rs 4 lakh given to each family under funds from the three-tier panchayat system, the state government and HUDCO loans. Since the beneficiaries were fewer in number, the panchayat was even able to reduce the loan burden by tapping into the state’s Plan General funds, in addition to the Special Component Plan funds, meant specifically for the welfare of Scheduled Castes.

On the 300 hectares of Kole wetlands that come under the panchayat, farmers are being assisted to continue the traditional practice of below-sea-level paddy farming. This Ramsar site is a unique ecosystem which acts as a natural reservoir during the monsoon, storing excess rainwater and helping prevent floods. In the dry season, when water levels recede, the land is used for cultivation.

“Generally, paddy farming is not so profitable, and in the absence of government support, farmers may stop doing it,” Sunil said. To encourage cultivation, the panchayat purchases seeds and fertilisers and supplies them free of cost through Krishi Bhavans. It also provides individual subsidies to partially offset labour costs, he added. In the livestock sector, subsidies were granted for buying livestock, providing treatment and vaccinations, supplying nutritious feed, and assisting dairy farmers.

Additionally, to expand cultivation under paddy as envisioned under the panchayat’s five-year plan, proposals have been submitted to the Kerala Land Development Corporation Ltd (KLDC) to convert barren private land into cultivable plots. The KLDC undertakes infrastructure works like bund construction and electrification using state funds.

According to Sunil, most barren land in the panchayat is now cultivable. They are usually taken on lease by entities like Kudumbashree, who farm there with MGNREGS workers.

Sunil adds, “Even during fund shortages, we ensure that the budget for productive sectors is protected. We instead reduce spending on areas like road works. That’s because the productive and welfare sectors affect people’s lives the most.”

(Navya PK is a freelance journalist and a member of 101Reporters, a pan-India network of grassroots reporters.) 

Courtesy: Newsclick

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On February 24, 2024, the Ministry of Statistics and Programme Implementation released the HCES Data for 2022-23, first time after 2011-12. It only released the summary results of HCES: 2022-23, and the detailed report of the survey was reported to be coming out only by June 2024 i.e., after the 2024 General Elections. Usually, this survey takes place every 5 years and the survey that was conducted in 2017-18 was not released at all on the pretext of ‘data quality’ issues; no subsequent survey was conducted although the government came to power again, possibly due to the pandemic.

B.V.R. Subrahmanyam, the chief of NITI Aayog, the government’s think-tank claimed that the HCES data indicated that less than 5% of Indians would be, or are, below the poverty line. If this is to be taken as a fact, that would be a significant drop from the 21.9 % of people below poverty line in 2011-12. Many have pointed out the timing of the fact sheet rather than the whole report being put out just before the elections, as a ploy. There are issues with how data was collected and interpreted etc.

This article presents an overview of poverty and the concepts around it, the issue with the HCES data, and the subsequent interpretations.

What is poverty and how is it measured?

Poverty is deprivation in well-being and comprises many dimensions. It includes low incomes and the inability to acquire the basic goods and services necessary for survival with dignity. According to the World Bank, people living on less than $1.90 per person per day are considered extremely poor and in September 2022, this limit has changed from $1.90 to $2.15 USD. The World Bank uses the lines of the poorest countries to define the international extreme poverty line. Ending poverty in all forms, everywhere is also the first of the 15 United Nations Sustainable Development Goals.

Measuring poverty is crucial for several reasons. Firstly, it helps in understanding the extent of economic hardship and deprivation within a society, allowing for targeted resource allocation to assist those in need. Poverty measurement is essential for creating a foundation where every individual, regardless of background, has access to basic living standards necessary for health, education, and overall well-being. Additionally, poverty measurement is associated with current material hardships faced by families, making it a vital tool for identifying and addressing issues related to housing, food security, and healthcare access.

Poverty Ratio- also known as Head Count Ratio (HCR) is the total number of poor people to the whole population. There are various types of poverty. Absolute Poverty refers the most basic level of poverty, where individuals lack the resources to meet their basic needs for survival, such as food, shelter, and clothing. These essentials will be clubbed into a Poverty Line Basket and those who cannot afford the items in the basket in a given time are considered as poor.

Relative Poverty, on the other hand, is a measure of poverty relative to the standards of living in a society. It focuses on disparities in income and wealth within a population, highlighting the gap between the rich and the poor.

How has India measured poverty since Independence?

In India, various committees have recommended, since independence, over what poverty is and who constitutes the poor.

After India gained independence, various Working Groups played a role in shaping the methods to calculate poverty. The Working Group of 1962 established a national minimum consumption expenditure, excluding health and education costs which were assumed as government responsibilities. Later, in 1979, the Task Force (Alagh) focused on calorie requirements to determine the poverty line. The Expert Group (Lakdawala) of 1993 refined the process by introducing state-specific poverty lines to account for price differences across the country.

Data collection methods for poverty estimation have also evolved. Initially, a Uniform Resource Period (URP) with a 30-day recall period was used. Later, the Tendulkar Committee introduced the Mixed Reference Period (MRP) which incorporated longer recall periods for certain items. The Rangarajan Committee proposed a further refined MMRP method. The focus shifted to include calorie requirements, as recommended by the ICMR, to ensure basic nutritional needs were met as part of the poverty line considerations. The Rangarajan’s committee’s recommendations have not been accepted by the government.

The Brookings Commentary, 2024 by Bhalla and Bhasin

The bottom 5% of India’s rural population, ranked by their Monthly Per Capital Expenditure (MPCE), has an average MPCE of Rs. 1372 and for urban it is Rs. 2001. Monthly Per Capita Expenditure (MPCE) represents the average amount of money an individual spends each month on various needs.

After the HCES Factsheet has been released, a commentary was released based on HCES Data by the Brookings Institution, authored by Surjit Bhalla, former part-time member of the Prime Minister’s Economic Advisory Council and Karan Bhasin that stated that the country’s real per capital consumption growth has been at 2.9%; with rural growth at 3.1% and urban growth at 2.6%. There were two other things that the report mentioned- i) there was a significant decline in inequality in terms of Gini coefficient; ii) Poverty in rural areas was recorded at 2.5% and 1% in urban areas. The report also stated that given that extreme poverty is eliminated, the country should shift to a higher poverty line. While the commentary mentions that it will give reasons as to why inequality is on the decline in terms of Gini Coefficient, there was no mention of such reasons in particular. The Gini Coefficient is a measure of income inequality within a population. It ranges from 0 to 1, where 0 represents perfect equality (everyone has the same income) and 1 represents perfect inequality (one person has all the income). A higher Gini Coefficient indicates greater income inequality, while a lower coefficient suggests more equal distribution of income. It’s used to assess the gap between the rich and poor in a society.

Inconsistencies between Incomplete Government Data and Independent Research Projects

A Paris based research organisation- World Inequality Labs has come out with a paper titled “Income and Wealth Inequality in India, 1922-2023: The Rise of Billionaire Raj” with significant insights on inequality in India. Authored by four economists including Thomas Piketty, the paper had three major points. One is that India’s top 1% income share is among the highest in the world; Second, quality of economic data in India is poor and has seen a decline recently thus making their findings lower than the actual inequality and finally that by 2022-23; third, the top 1% income and wealth shares are 22.6% and 40.1% respectively and are at their highest historical levels. The paper used variety of data to arrive at their findings including National Income Accounts, Income tax Statistic, Consumption Expenditure Surveys, Indian Billionaire Rankings, India Rich Lists, and Periodic Labour Force Survey Data etc.

The Brookings report states that Inequality in terms of Gini Coefficient has been declining whereas the World Inequality Labs Report says otherwise. Clearly, these are conflicting views on data and its interpretation. To be fair, the government’s handling of data, including the publication of a mere summary fact sheet of HCES Data is not desirable for sustaining the credibility, especially after it threw into the 2017-18 HCES Data into the bin without any transparency on what went wrong.

While it is necessary to engage in a deeper discourse on the issue of poverty and on data, it is further important to change the view of what constitutes poverty in India today, more than 10 years after the Tendulkar Committee Recommendations. Not only should the discussion to raise the poverty line in the light of the pandemic, Climate Change take centre stage in policy planning, but these issues should also become prime points in political discourse, thus bringing back the alleviation of poverty, not just extreme poverty from India.

(The author is part of the organisation’s legal research team)

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India is “off target” for as many as 19 of 33 so-called indicators of Sustainable Development Goals (SDGs) relating to poverty, hunger, health and gender inequality, says a study that has also flagged a worsening anaemia trend from 2016 to 2021.

The study by independent experts, which covers 707 districts, has found that in 2021, over 75 per cent of the districts were off target on key indicators such as access to basic services, anaemia, poverty, stunting in children, child marriage and partner violence.

The conclusions and findings also suggest that if India continues to progress at the same pace as during 2016-2021, it will take the country years or even decades after the 2030 target to achieve some of the SDG indicators. For example, the goals relating to improved water will be achieved by 2031, those on access to basic services by 2047, and those relating to partner violence by 2090.

The Lancet study says that the critical “off-target indicators” include Access to Basic Services, Poverty, Stunting and Wasting of Children, Anaemia, Child Marriage, Partner Violence, Tobacco Use, and Modern Contraceptive Use. For each of these these indicators, more than 75% of the districts were Off-Target. Because of a worsening trend observed between 2016 and 2021, and assuming no course correction occurs, many districts will never meet the targets on the SDGs even well after 2030. Not surprisingly, these “Off-Target districts” are concentrated in the states of Madhya Pradesh, Chhattisgarh, Jharkhand, Bihar, and Odisha. Also, it does not appear that Aspirational Districts, on average, are performing better in meeting the SDG targets than other districts on majority of the indicators.

What are the SDGs?

The Sustainable Development Goals (SDGs) are a broad and wide set of objectives defined by the UN in 2015. They represent improvements in economic development, social welfare and environmental sustainability that are to be achieved by 2030 and have been agreed on by 195 countries, including India.

“Our study provides scope for policymakers to undertake course corrections,” said S.V. Subramanian, a professor of population health at Harvard University who led the study. It was published earlier this week in The Lancet, with co-authors from India and South Korea.

Ernakulam (Kerala) and Lakshadweep have already achieved the targets relating to 13 indicators, the highest by any district. As many as 61 districts, largely located in Kerala, Tamil Nadu, Arunachal Pradesh and Punjab, have achieved the targets on 9 to 13 indicators.

However, two of the off-target indicators — which means they are unlikely to be achieved by 2030 at the current pace — are anaemia in women, which worsened from 51 per cent in 2016 to 56 per cent in 2021, and stunting in children. The districts with the most off-target indicators — 27 — are Bijapur (Chhattisgarh), East Jaintia and West Khasi Hills (Meghalaya), and Sepahijala (Tripura).

Ninety-six districts, mainly in Maharashtra, Bengal, Bihar, Jharkhand, Meghalaya and Chhattisgarh, are off target on 22 to 26 indicators.

A majority of districts are off-target on SDGs linked to “no poverty,” “zero hunger,” “good health,” and “gender inequality” despite existing programmes or schemes in place to address these goals. Examples are the Pradhan Mantri Awaas Yojana (to deliver affordable housing to the poor), the Pradhan Mantri Sahaj Bijli Har Ghar (to provide universal household electrification), or the Jal Jeevan Mission (to provide safe adequate tapped drinking water).

Notably, the Narendra Modi government launched the Beti Bachao Beti Padhao (to curb sex selective abortions and promote girls’ education) campaign in 2015 and the Mahila Shakti Kendra initiative to promote skill development and employment of women in 2017.

The study has projected that India will meet the SDG target on gender inequality by 2090 and for one-third of districts, this goal will not be met “in the foreseeable future,” the researchers said. “The findings point to a need to understand why some current policies aren’t working,” said William Joe, assistant professor at the Population Research Centre, Institute of Economic Growth, New Delhi, and a study co-author.

Subramanian and his collaborators analysed the SDG indicators through datasets from two National Family Health Surveys – those carried out in 2015-2016 and 2019-21. Both surveys covered a sample of 2.8 million people from districts across the country. However, a population scientist at the International Institute of Population Sciences, Mumbai, said that NFHS datasets might not be the best way to assess progress on SDG indicators.

“There are limitations in the NFHS data, which might not provide the complete picture,” said Sanjay Mohanty, professor and head of population and development at the IIPS. Mohanty and other health experts have also questioned the anaemia and stunting data in the NFHS. 

Using the 2016 and 2021 National Family Health Surveys, the study provides an assessment for 707 districts of India on their status with regards to meeting the SDGs on 33 indicators related to the domains of population health and social determinants of health. It also provides an assessment of the progress that is occurring among ADs. Notably, the first survey period of 2015–16 coincides with the global ratification of the Sustainable Development Agenda, and thereby providing an approximation of a timely baseline for the assessment. The indicators covered in this mid-line assessment touch upon 9 from a total of 17 SDGs, with a substantial number of indicators linked to 6 SDGs (No Poverty, Zero Hunger, Good Health and Well-Being, Gender Equality, Clean Water and Sanitation, Affordable and Clean Energy)

Basis for Interpretation

A mid-line assessment of districts’ progress on SDGs suggests an urgent need to increase the pace and momentum on four SDG goals: No Poverty (SDG 1), Zero Hunger (SDG 2), Good Health and Well-Being (SDG 3) and Gender Equality (SDG 5). Developing a strategic roadmap at this time will help India ensure success with regards to meeting the SDGs. India’s emergence and sustenance as a leading economic power depends on meeting some of the more basic health and social determinants of health-related SDGs in an immediate and equitable manner.

This work was funded by the Bill and Melinda Gates Foundation, INV-002992.

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Centre refers to 2011-12 data to discuss current poverty!

Poverty alleviation requires revision of Poverty Line

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During the monsoon session of the Parliament, Member of Parliament Arun Sao asked State-wise details about the decline in poverty in the country, if any, and asked about the Centre’s periodical review of the methodology to assess poverty-levels.

In reply, the Centre referred to its 2011-12 data showed that 2,697.83 lakh people all over India were still below the poverty line (BPL) of which 2,166.58 lakh people were from rural areas. In Chhattisgarh, 101.27 lakh people were under the poverty line making up nearly 40 percent of the population. The Andaman and Nicobar Islands had the least number of BPL people (4,000) making up one percent of the population. On the other hand, Uttar Pradesh had the greatest number of BPL people (598.19 lakh).

Referring to a 2013 press note, Minister of State of the Ministry Of Planning and the Ministry Of Statistics & Programme Implementation (MoSPI) Rao Inderjit Singh said, “According to this Press Note, the number of persons living below poverty line in India has been estimated as 27 crore (21.9%) in 2011- 12 as compared to 40.76 crore (37.2%) in 2004-05. The rate of decline of poverty ratio during 2004- 05 to 2011-12 was 2.18 % per year.”

He said methodology for poverty assessment is reviewed from time to time and that the most recent report is under government consideration. Nowadays, the official poverty estimates are based on Tendulkar methodology.

In June 2014, the then Planning Commission under the Chairmanship of Dr. C. Rangarajan submitted a report that reviewed the Methodology for Measurement of Poverty. However, the Government is yet to take a decision on the report submitted by the Expert Group. After the formation of NITI Aayog that replaced the Planning Commission, a Task Force on Elimination of Poverty in India was created on March 16, 2015 under the Chairmanship of Dr. Arvind Panagariya, former Vice Chairman, NITI Aayog. Its report was submitted to the Prime Minister on July 11, 2016.

“The Terms of Reference for the Task Force inter alia included to “Develop a working definition of poverty”. The report of the Task Force primarily focuses on issues of measurement of poverty and strategies to combat poverty. Regarding estimation of poverty, the report of the Task Force states that “a consensus in favour of either the Tendulkar or a higher poverty line did not emerge. Therefore, the Task Force has concluded that the matter be considered in greater depth by the country’s top experts on poverty before a final decision is made. Accordingly, it is recommended that an expert committee be set up to arrive at an informed decision on the level at which the poverty line should be set,” he said.

Such revisions in methodology have been taking place since 1977. Originally, the Planning Commission was the nodal agency in the Government for estimation of poverty. It used a poverty line based on per capita consumption expenditure as the criterion to determine the persons living below the poverty line (BPL).

The last revision report was accepted in January 2011. It was written by an Expert Group under the chairmanship of Prof. Suresh D. Tendulkar in 2005 and submitted in November, 2009.

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The Covid-19 pandemic has forced everyone to rethink our priorities and revise our approach to problem solving. It has also pushed millions of people across the world into poverty. But in order to help these people regain their financial health, perhaps it is time we revisited the traditional idea of the poverty line.

A new report titled ‘The parlous state of poverty eradication’ by the United Nations Special Rapporteur on extreme poverty and human rights makes a case for a revision of the World Bank’s International Poverty Line (IPL). In the report, author and Australian scholar Philip Alston says, “The world is at an existential crossroads involving a pandemic, a deep economic recession, devastating climate change, extreme inequality, and an uprising against racist policies. Running through all of these challenges is the longstanding neglect of extreme poverty by many governments, economists, and human rights advocates.”

Alston further says, “By single-mindedly focusing on the World Bank’s flawed international poverty line, the international community mistakenly gauges progress in eliminating poverty by reference to a standard of miserable subsistence rather than an even minimally adequate standard of living. This in turn facilitates greatly exaggerated claims about the impending eradication of extreme poverty and downplays the parlous state of impoverishment in which billions of people still subsist.”

Alston gives an example of the flawed method of calculation stating, “The current line is derived from an average of national poverty lines adopted by some of the world’s poorest countries, mostly in Sub-Saharan Africa. Unlike many national lines, it is not based on any direct assessment of the cost of essential needs. It is an absolute line, constant in value, calculated and expressed using purchasing power parity (PPP) dollars, which are designed to adjust for the costs of goods in different countries in a way that market exchange rates do not (notwithstanding the many challenges to the validity of the PPPs). According to the Bank, the line is a globally relevant yardstick that allows for the achievement of the same meager needs in every country.”

The report then showcases how this flawed calculation actually translates in the real world. It says, “The current line of US$1.90 2011 PPP per day11 represents what that amount could buy in the United States in 2011. Expressed in local currencies for the most recent years available, the line translates to living on 7.49 yuan per day in China, 1.41 euros in Portugal, 22.49 pesos in Mexico, 50.83 rubles in Russia, 355.18 naira in Nigeria, 910.15 pesos in Chile, or 36.27 rupees in India. The IPL is of course well below the national poverty lines of most countries, and accordingly generates dramatically lower numbers in poverty. For example, using the most recent comparisons available, Thailand has a poverty rate of 0.0 percent under the IPL but 9.9 percent under the national line,13 the United States, 1.2 percent versus 12.7 percent,14 South Africa, 18.9 percent versus 55 percent,15 and Mexico, 1.7 percent versus 41.9 percent.”

Alston’s report lays down many short-comings of the WB’s IPL, most significantly the failure to account for social differences, gender inequality and overlooked groups homeless people, migrant workers, refugees, etc. The report also criticizes how most governments have failed to take into account the poor in their approach to tiding over the Covid-19 pandemic. It says, “The pithy advice to ‘stay home, socially distance, wash hands, and see a doctor in case of fever’ highlights the plight of the vast numbers who can do none of these things. They have no home in which to shelter, no food stockpiles, live in crowded and unsanitary conditions, and have no access to clean water or affordable medical care.” It adds, “Poor people are more likely to be exposed to, and least likely to be protected from, the virus. They experience the impact of lockdowns, layoffs, and closures far more dramatically. The majority of ‘essential workers’ are poorly paid, badly protected, and unsupported by emergency assistance. In the understandable rush to re-open economies, they risk becoming sacrificial lambs.”

Given how the IPL has helped us come up with the Millennium Development Goals (MDG) and Sustainable Development Goals (SDG), perhaps we need to recalibrate these as well. In conclusion the report says that the approach to poverty alleviation must be reviewed and revised. Alston says, “Poverty is a political choice and its elimination requires: (i) reconceiving the relationship between growth and poverty elimination; (ii) tackling inequality and embracing redistribution; (iii) promoting tax justice; (iv) implementing universal social protection; (v) centering the role of government; (vi) embracing participatory governance; and (vii) adapting international poverty measurement.”

The entire report may be viewed here: 

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Talking about dire poverty in the country and living in dire poverty are two completely different things. An example of this came to light when Kerala woke up to reports of a woman whose children were found to be eating mud out of sheer hunger.

Sridevi, who lived with her six kids in a makeshift shanty of 50 sq. ft on railway land, around 3 km from the State Secretariat at Kaithamukku in Kerala’s Thiruvananthapuram, made a distress call to the toll-free helpline of Kerala State Council for Child Welfare (KSCCW) on December 1 after she couldn’t bear the plight of her children anymore.

Reports by The Times of India say that the incident came to light when the headmistress of the government school where the eldest child is enrolled, asked him about his living conditions.

The headmistress states that the boy, aged seven, told her that their alcoholic father would physically abuse all of them, beat them and smash their heads against the wall. He spared the two youngest children who are still being breastfed. He also allegedly would throw mud into their food or leave them and their mother starving, the neighbours told TOI. However, Sridevi hasn’t spoken a word about this.

The school then promptly alerted Childline that works for the welfare of children across the country.

The KSCCW general secretary S P Deepak who visited the family found their situation shocking. He said, “The kids only had water for the past two days. One boy was seen eating mud out of hunger.”

The KSCCW then asked Sridevi if she was willing to hand over the children to them for better care and she agreed. Now, the four kids – two boys aged seven years and five years and two girls aged four and two, will be under the care of the government. The other two kids who are still being breastfed, will be provided for by the government as well.

Thiruvananthapuram Mayor K Sreekumar has offered Sridevi a temporary cleaning job at the Corporation office and a house being constructed under the Corporation’s housing scheme Life Mission, will also be provided to her and her kids. She also didn’t have a ration card, which was just provided to her by the state in a haste. In the interim, she has been shifted to the MahilaMandiram at Poojappura with her kids. Sridevi will now earn a daily wage of Rs. 650, Manorama Online reported.

Health Minister KK Shailaja told the media that all the four kids, whose medical examination will be conducted at the SAT Hospital soon, will be under the protection of the government. Many voluntary organizations have also come out in support of the family.
 

Poverty in Kerala

According to the World Bank Report of 2017, Kerala has experienced a steady decline in poverty since 1994. According to the report, after 2005, Kerala grew and reduced poverty faster than many states, but while it is home to a smaller share of the poor in the country, there are pockets within the state that have recorded a higher incidence of poverty.

According to the State Planning Board, in Kerala, factors such as land reforms, public distribution systems schemes, Kudumbashree and Planning schemes have effectively brought down poverty ratios. In 2011-12, Kerala’s poverty stood at 7.1%, second only to Goa at 5.1%.

Yet, Kerala, in the recent years has always been battered by floods and other natural calamities that has resulted in loss of lives and livelihoods. Tracking the current rate of poverty in India is difficult because there are no statistics available after 2012.

However, going by the numbers we have, it looks like Sridevi was one of the unfortunate ones bereft of the social benefits provided by the state.

Domestic Violence and violence against children in Kerala

According to a report by the National Commission of Women (NCW) 2005, almost 80% of the victims of domestic violence were in the age group of 20-40 years and only 68% of women in the 14 districts sampled had secondary / higher secondary education.

67.1% respondents did not have life savings and in 57.9% households, the family affairs were controlled by the husband. 75.4% of the husbands in the households were alcoholics and almost half, 48.7% respondents stated the ‘alcoholic nature’ of the husband as the first cause of domestic violence.

Literate Kerala has also seen an upsurge in crimes against children with the number going up from 549 in 2008 to 4,008 in 2018. (The New Indian Express). Most of these crimes have gone unreported because they have been committed by people known to the children. Though the Kerala government also put up neighbourhood vigilance schemes in 2013, they do not seem to have worked.

It is ironical that Kerala, a state that takes pride in its progress, cannot protect its children. This battle that Sridevi is fighting is not just against poverty. It is a multi-layered issue involving destitution, social benefits, violence and the security of children. She was rescued from her situation because she finally wrestled her way out of it for her children by contacting the government. But there are many others who do not have the knowledge or the means to get them out of such situations. Then, will the government of Kerala, for that matter the government of India take stock of the matter and bring the neglected into their fold before matters get worse?

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Text of the note prepared by Compassion UK, “Child Poverty: the Facts and the Future”, which is an in-depth guide to child poverty and how can one tackle the challenges:

Child. Poverty. Two words that should never be put together. Yet tragically this is the reality for an estimated 385 million children, accounting for more than half of the world’s extreme poor.

It can feel like an insurmountable problem – but we are making progress and there is plenty of cause for hope and further action. Since 1990, the number of people living in extreme poverty has halved. That’s 1 billion fewer people living in poverty today.

Yet, while the numbers of people trapped in extreme poverty are declining, the rate of release is slowing, so that in many parts of the world we are not currently on track to eradicate extreme poverty by 2030, the first Sustainable Development Goal. With nearly 600 million people still deeply entrenched in poverty – over half of them children – we still have a long way to go.

Let’s take a closer look at the specific issues and what we can do to continue to effect change and bring an end to child poverty in our world.

Why focus on child poverty, not just poverty as a whole?

It’s down to a tragic yet undeniable formula: children in poverty grow into adults in poverty – and the cycle of poverty is then perpetuated.

But release a child from poverty – and you free a future adult (and potentially an entire family) from poverty.

In a world in which one in three children are identified as multi-dimensionally poor (compared with one in six adults), consider the impact that each of the following indicators has on a child …

Child poverty issue 1: Food and nutrition

Hunger and malnutrition are not the same thing.

Too many children in our world today are starving. But starvation is not the only food-related enemy. A child can have a full stomach, yet still suffer from a dangerous deprivation of the vitamins and minerals they need to thrive.

Malnutrition is responsible for half of all deaths in children under 5 years of age, claiming the lives of over 3 million children every year and those who do survive are affected for life … unless intervention comes in time.

• Malnutrition kicks off a chain reaction.
• Poor nutrition drastically weakens a child’s immune system, making them more vulnerable to sickness.
• Chronic and acute sickness hamper cognitive function (the brain’s ability to learn and develop).
• Poor learning & attendance at school affects a child’s education.
• Low levels of education affect a child’s subsequent earning power in adulthood.
• A child who began life in poverty may grow into an adult trapped in poverty with a family of their own … trapped in poverty (back to beginning of cycle).

Stunting

Children who suffer from malnutrition in the first 1,000 days of their life are also highly susceptible to stunting, a condition in which growth and development are impaired. The visible, physical effect is that a child’s height-for-age is more than two standard deviations below the WHO Child Growth Standards median, and their strength and mobility is affected. The unseen internal repercussions of stunting are vast and steal a child’s future.

Cause for hope

Nutrition interventions can help minimise the effects of stunting or even stop it in its tracks, restoring potential to a child’s future.

When we provide children with the nutrition and healthcare they need in their first two years of life, we are attacking poverty in its infancy, rather than allowing it to attack infants themselves.

Lance is one child who has suffered greatly due to malnourishment. Thankfully, he’s been given back his future through nutritional and health interventions.

Poverty has stunted Lance’s growth, and at 8 years old he looks like a 4-year-old. He suffered from acute malnourishment and for years he was too weak to lift himself up and walk. Child sponsorship has enabled Lance to receive proper nourishment and healthcare. While still small for his age, Lance is now healthy and strong enough to play with other children.

Child poverty issue 2: Healthcare

The need for proper nutrition, especially in infancy and childhood, is closely linked to the need for access to affordable healthcare. While we strive to eradicate poverty as swiftly as possible, each year about 100 million people are forced into poverty as a result of health-related expenses.

Healthcare workers

• Issue: Aside from affordability, the availability of healthcare workers is also a problem. Sub-Saharan Africa has a health worker deficit of 1.8 million– a figure which, without immediate and concerted action, will rise to 4.3 million over the next 20 years as the population rises.
• Way forward:  The maths is clear on this one. The additional cost of providing sub-Saharan Africa with another 1 million community health workers would be an estimated US$3.1 billion per year. The return on that investment, in addition to the lives saved and suffering reduced, would be an estimated US$19.4 billion per yearfrom enhanced productivity.

Prenatal care for babies

• Issue: A lack of healthcare or nutrition impacts a child’s life from birth (and even beforehand).
• Way forward: Research estimates that 40% of neonatal deaths could be avertedwith key interventions around the time of birth. These include care by a skilled birth attendant, emergency obstetric care, immediate newborn care and newborn resuscitation. Another 30% could be saved through ‘kangaroo mother’ care with skin-to-skin contact starting from birth and other basic methods of prevention, management and treatment of neonatal issues

Prenatal care for mothers

• Issue: Every day, approximately 830 women die from preventable causesrelated to pregnancy and childhood, with 99% of maternal deaths occurring in developing countries
• Way forward: Providing pregnant women with the healthcare they need simultaneously protects the woman’s health and helps to prevent her child from being orphaned at birth. To protect the mother is to protect the baby.

Defence against preventable diseases

• Issue: More than half of deaths in under-5s are due to diseases that are preventableand treatable through simple, affordable interventions. Malaria alone takes the life of a child every 2 minutes.
• Way forward: Immunising children against such threats averts an estimated 2 million to 3 million deaths every year (Source, 2018). It also costs far less to immunise against illnesses than it does to treat them.

HIV/AIDS testing and treatment

• Issue: Each year of the last decade, at least 10 million children under the age of 18 lost either one or both parents to AIDS. According to UNAIDS, in 2017 there were approximately 36.9 million people worldwide known to be living with HIV/AIDS. Of these, 1.8 million were children, most of whom live in sub-Saharan Africa and were infected by their HIV-positive mothers during pregnancy, childbirth or breastfeeding.
• Way forward: Progress is being made through providing mothers with medicine. Between 2010 and 2017, the percentage of pregnant women living with HIV who had access to antiretroviral medicines to prevent transmission of HIV to their babies increased by 33% (Source, 2017).

Child poverty issue 3: Education

Education is a huge key to unlocking the futures of children who are being held captive by poverty.

More than 260 million of the world’s children are not in school, while hundreds of millions are attending school yet not receiving any real education. Here are just a handful of the results from the World Data Report 2018 highlighting the importance of making sure every child receives a quality education:

• Quality childhood education benefits the individual child and society as a whole.
• The quality of a child’s education directly influences their learning results. No big surprise there, yet hundreds of millions of children today cannot read, write or perform basic maths equations despite attending school.
• More schooling leads to higher wages. For each year of additional effective schooling, individual adult earnings increase by an average of 10%.
• Quality education in early childhood impacts the ability to learn, think, process and problem-solve – for life.

Cause for hope

There has been a significant increase in the push to make early childhood and primary education universally accessible. The Global Partnership for Education reports that:

• 77 million more children were in primary school in 2016 in GPE partner countries compared to 2002.
• 38% of children were enrolled in pre-primary education in GPE partner countries in 2016 compared to 19% in 2002.
  If current trends continue, between 2017 and 2030, at least 22 million children will miss out on the pre-primary education so critical to their later ability to succeed in school and beyond. Funding and facilitating education as early as possible is of vital importance to stemming the tide of child poverty.

If all children born today in lower-middle income countries could be educated to even a basic level of literacy and numeracy skills, there would be a 13-fold increase in GDP over their lifetimes. When we take care of today’s children by providing nourishment, healthcare and basic education, we systematically empower them to take care of themselves (and their families) as adults.

Child poverty issue 4: Gender 

There’s no way to talk about education and poverty without acknowledging the enormous impact of the gender gap.

A worldwide study of human development levels (quality of life and levels of personal productivity and growth) compared with gender equality levels, confirms an undeniable link between the two. The 10 countries ranking lowest on the Human Development Index – Niger, Central African Republic, South Sudan, Chad, Burundi, Sierra Leone, Burkina Faso, Mali, Liberia and Mozambique – had the highest levels of gender inequality.

For girls, this impacts every area of life:

Girls have far less access to education than boys. Female youths are 1.7 times more likely to be illiterate than male youths.

According to 2018 findings by the World Bank, girls given access to better education grow into women who:

• are healthier
• participate more in the formal labour market
• earn higher incomes
• have fewer children
• marry at a later age
• are less vulnerable to harmful practices such as female genital mutilation (FGM)
• are able to provide better health care and education for their own children, should they choose to become mothers.

This combination of factors has enormous potential to lift households, communities, and nations out of poverty and to improve women’s rights. Notably, the better educated a society’s girls are, the more rights and influence they have as women.

Enforced early marriage

Globally, 1 in 5 girls are married before age 18. If child marriage does not decrease, there will be 1.2 billion women who were married as children by 2050.

Child brides face multiple threats including:

• isolation, limited freedom and disempowerment
• deprivation of their human rights to health, education and safety
• sexual abuse and resulting physical, emotional and mental issues
• dangerous complications in pregnancy and childbirth
• increased likelihood of contracting HIV/AIDS
• domestic violence
• perpetuated poverty due to their lack of access to education and economic opportunity.

Cause for hope

Thankfully, the last decade has seen a 15% decrease in the proportion of women married as children.

Child poverty issue 5: water and sanitation

Water is life. But 663 million people in our world don’t have access to safe drinking water, while 946 million don’t have access to proper sanitation, having no choice but to defecate in the open. A 2017 report shows a staggering level of inequality in access to WASH services around the world, including specific impacts on children.

Effective WASH services hold the key to:

• Reducing diarrhoea and other enteric diseases.
• Diarrheal diseases are the second highest contributors to global child mortality, causing about 10% of all deaths in children under five years.
• Empowering children to attend school.
• On average, women and children around the world spend 200 million hours every day collecting water.
• An estimated one in ten girls in sub-Saharan Africa misses school during their menstrual cycle.
• Up to 80% of illnesses in the developing world are caused by poor water and sanitation conditions, leading to children being absent from school – either because the children themselves fall sick, or because they have to stay home and look after a sick family member. In the case of a parent or guardian falling sick, it means loss of work, plunging the family deeper into poverty.
• Reduce levels of malnutrition and stunting. In Indonesia, only 5% of urban wastewater is safely treated and disposed of, and children living in communities with open defecation during the first 1,000 days of life are 11 percentage points more likely to be stunted.

Cause for hope:

In 2015, 6.6 billion people – 91% of the global population – used an improved drinking water source compared with 82% in 2000.

Yet, despite significant overall increase in the provision of improved WASH facilities over the last two decades, as of 2017 only Australia, New Zealand, North America and Europe are close to achieving universal basic water services. That’s a lot of the world still in need of safe water and improved sanitation.

Issue 6: Climate change and disaster relief 

Disasters, many of which are exacerbated by climate change and are increasing in frequency and intensity, impede progress towards sustainable development. On average there is about one major disaster recorded on the global databases every day on earth, and intensity may be increasing, in some cases as a result of climate change.

Children living in extreme poverty are most vulnerable to the effects of climate change, due to:

• lack of access to both preventative vaccines and medical care following illness or injury.
• increased chance of contagion through unsafe water and poor sanitation.
• low levels of immunity to disease due to food instability and insufficient nutrient supply.
• homes which are already unsafe shelters and therefore are subject to greater impact by natural disasters.

Cause for hope

We do not have to leave the poorest of the poor defenseless against disasters and climate change. We have the strategic planning knowledge to minimise risks from tsunamis, floods and cyclones through the use of disaster preparedness plans, land-use plans and early warning systems.

Preparation in advance of disasters is both a humanitarian and financial necessity. It’s estimated that investment in humanitarian preparedness in high-risk contexts yields an average financial return of 200%! That means every US$1 spent on preparing is worth an average US$2 needed in the event of an emergency.

How can one person make a difference to child poverty?

It’s about one person, empowering one child.

Every child has the right to a childhood – one that will enable them to thrive in the future. They cannot (and should never have to) provide themselves with all that they need – food, healthcare, clothing, shelter, education or psychosocially nurturing environments in which they are known,

loved and protected. It is the role of the world’s ‘grown-ups’ to give every child their own opportunity to ‘grow up’ – to grow into their full human potential.

Child poverty is a holistic problem, requiring a holistic solution

Compassion is a leading Christian child development charity, working with local churches in developing countries to release children from poverty. Our approach is a personal one: we link a child in poverty with a sponsor to empower them to break the cycle of poverty.

Through child sponsorship, we’re impacting children, families, communities and entire nations.

Courtesy: counterview.org

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A Wide-Angled Perspective:  A rural-led strategy will deliver slower overall growth but it will have a bigger impact on poverty under the present circumstances that keep the East Asian strategy out of India’s reach for now.

 

Image Courtesy: economictimes.indiatimes.com
 

In the absence of structural reforms for transformative growth, a rural-led growth strategy is the only option for economic revival at this point of time. Growth may be slower but it will be sustained. Supply-side measures like corporate cuts will not help.
 

The Indian economy has had the distinction of being one of the fastest growing economies in the world over the last three decades. Yet, today there is a sense of economic malaise in the air. The young are feeling frustrated as there are too few good jobs on the horizon for them. Rural areas are in distress as farm incomes have stagnated. Corporate investment has declined. Banks burdened with bad loans are finding it difficult to lend. Exports have declined. There are telltale signs of the onset of a further slowdown.

The Government is also showing signs of panic. Soon after witnessing the unease in the corporate sector after her budget speech in July 2019, the Finance Minister started holding consultations with business leaders to assuage their displeasure. The tax surcharge on income of over Rs 2 crore on capital gains of individual and institution investors (domestic and foreign) has been removed; only that on salaries and rent received by individuals remains. Several other measures have been announced: the merger of some public sector banks, recapitalisation, loan melas and moratorium on repayment of micro, small and medium enterprise (MSME) loans. All of these, except the last one, are supply side measures and are unlikely to have much of an impact anytime soon on stimulating demand.
 

Will the corrective measures recently taken by the government arrest the slowdown? If they do not, what would?

The measure that has received the most media attention is the corporate tax cut. In the third week of September came the announcement that the corporate tax rate would be cut from 30% to 22% for firms that do not seek any exemptions and from 35% to 25% for those who do. For manufacturing firms the tax rate would be as low as 15% for those making investments after October 2019. The news was welcomed by the corporate sector and boosted the Sensex index on the day of the announcement by as much as 4.5%.

How did such a state of affairs come to pass in this fast growing country? Will the corrective measures recently taken by the government arrest the slowdown? If they do not, what would? This essay is an attempt to answer these questions by examining the genesis of the present problems and then asks what should be the way forward. The goal is to put together a plausible and coherent story.
 

1. Development in a Dual Economy

Before we start putting together an explanation for the present state of affairs, we should understand the structure of the Indian economy.
Let us start by defining the terms ‘formal’ and ‘informal’. The ‘formal’ sector consists of all the registered firms (i.e., firms employing 10 or more employees) plus the government sector. The ‘informal’ sector consists of the rest. Typically, formal sector jobs are better jobs in which the workers get some basic benefits like provident fund, pensions, etc. Informal sector workers do not. Agriculture — the sector that employees the largest part of Indian labour force (over 40%) — is informal. Much of the rural economy is informal and so is a part of the urban economy. Eighty percent of India’s population makes their living in the informal sector and produces half of India’s GDP. Almost all the poor toil in the informal sector.

Consider India as a dual economy made up of two free trading regions – “Urban” and “Rural”. Urban is more developed and hence the average incomes are higher there. This is so because typically Urban growth is based on productivity growth in the formal sector while Rural growth is based much more on productivity growth in the informal sector (agriculture).

Typically, labour productivity and also the potential for productivity growth tends to be higher in the formal sectors like industry than in an informal sector like small-scale agriculture. Faster industrial growth would allow agricultural labour to move to higher productivity jobs in industry, and this can be a significant contributor to the overall growth propelled by productivity growth in each sector.

When there are fewer farmers left tilling the same amount of land, they too see an increase in their incomes. There can be a further increase in agricultural incomes through productivity gains in agriculture. When rural incomes rise, they also result in an increased demand for industrial goods, thus producing a virtuous cycle of growth. This is what happened in successful Asian countries. Not only did they grow fast, but they also managed to drastically reduce poverty in a generation.

All developed countries have gone through this process. Even large agricultural exporting countries like the United States (US), Canada and Australia have a miniscule percentage of their labour living off agriculture now.

The two oft repeated questions: ‘Why is the economy not creating enough good jobs?’ and ‘Why is there such rural distress?’ have a common answer. India has not succeeded in producing enough high productivity jobs to draw labour away from agriculture. Of course, there are further reasons for the present distress in rural areas, demonetisation being an important one. We will discuss these later.

If developed countries underwent this process and so did many other Asian countries, why is India taking so long to do this? To understand this let us first understand the strategy employed by the successful Asian countries.
 

2. A Successful Developmental Strategy

Except for the city-states like Hong Kong and Singapore, all the successful Asian countries were primarily agrarian before they industrialised. What they accomplished within 20 years was a total transformation of their economies.

Initially, the policymakers concentrated on increasing productivity in agriculture. This directly increased the incomes of the rural population, and, in addition, allowed a higher level of agricultural exports that would, in turn, enable imports of machinery and technology.
 

When a country industrialises in a transformative way, it needs to undertake some major structural reforms.

Late-developing countries have the advantage that they can rapidly improve their productivity by transferring technology from developed countries rather than having to invent it themselves. Some of the technology transfer is done through foreign investment and the rest through direct purchase or copying. However, in order to absorb the transferred technology they need a well-trained labour force and supporting infrastructure. Moreover, in order to sustain a high rate of capital formation, they needed to have a high rate of domestic savings. All the Asian success stories paid due diligence to these essential aspects of development.

When a country industrialises in a transformative way, it needs to undertake some major structural reforms. In order to facilitate a movement of land and labour to their more productive use, laws pertaining to land and labour may have to be reformed. In order to facilitate savings by households, the financial system needs to be modernised. The financial system should be easily accessible for people no matter where they live and also it should be able to inspire trust. Foreign investors should be assured of legal protection of their intellectual property rights. The success of these Asian countries was based on these basic preliminaries.

Another crucial aspect of their development strategy was to start by focusing on producing labour-intensive goods (textiles, footwear, toys, etc.) for the markets in developed countries. They could thus take advantage of their cheap labour and then produce these goods in quantities far in excess of what they could have sold domestically. Thus, domestic demand was never a constraint for them in expanding their industries producing goods in which they had a comparative advantage.

There is a certain logic behind this export-led strategy for fast growth. First, when firms can see that there is a potential market for their products they are inclined to make investments. Second, to be able to accumulate capital, a country needs to have a high savings rate; but high savings imply low domestic consumption and hence low domestic demand. However, when a country produces for foreign markets, the trade-off between savings and consumption becomes irrelevant. It can afford to have a high savings rate domestically. With access to export markets, it can have both high domestic savings and high demand coming from consumption abroad. In addition, there is a much greater choice in what to produce as the world demand is bound to be more diverse than domestic demand.

The manufacturing sector, especially labour-intensive manufacturing, does not require years of university education to acquire the requisite skills. A high-school graduate or less with some on the job training is often adequate for most of the jobs in manufacturing.

Surplus labour from the informal sector, including agriculture, can move into labour-intensive manufacturing with minimum additional training, as long as they have basic skills like literacy and numeracy. This is what happened in Taiwan, South Korea, Thailand, Indonesia and China. Lately, even Vietnam and Bangladesh have followed course.

Most importantly, as their industrial sector expanded, they absorbed more and more labour from agriculture – a sector with markedly lower productivity. Poverty declined as labour moved to a more productive sector, and the productivity of the remaining agricultural labour also increased. The growth was fast and also inclusive.

It is important to mention that their respective governments actively aided this effort to develop a manufacturing sector in select areas with an eye on export markets. This was done through an industrial policy that included low interest loans, land grants, tax holidays and requisite infrastructure like power, container ports and other transportation networks. Albeit, it is easier to do it in countries where the democratic norms are rather flexible.
 

3. Why has India Failed to Follow the East Asian Script?

Unlike the East and Southeast Asian governments, the Indian government did not direct the course of the post-1991 growth. Liberalisation certainly helped unleash market forces but the course of development was determined more or less through serendipity.

When the licence raj ended in 1991, a few significant aspects of the reforms determined the subsequent course of the Indian growth story.

In 1992, the government monopoly on the communication sector officially ended. The years between 1994 and 1999 saw a great deal of churning in this sector. Gradually, cell phones became pervasive. This was an opportune time for communication technology to take off in India. Due to excessive emphasis on public sector investments since 1960s in high-end technical and managerial institutions like the IITs and IIMs, there was a surplus of highly trained manpower available.

At the same time, there was a sudden surge of demand all over the world for IT professionals as the Internet was appearing on the world stage. Indian engineers who were over-skilled for the Indian market had been migrating to the US since the 1960s where they had managed to establish quite a reputation. All this turned out to be fortuitous for Indian firms like TCS, WIPRO and Infosys to emerge on the world stage. Communications and business services grew to be India’s fastest growing sectors from 1993 to 2004 at 20.7% and 24.3% per annum, respectively. Software exports grew at the astronomical rate of 34% per annum over that period¹.
 

[I]nclusive growth in India is a far more difficult prospect for India in 2020 than for China in 2000.

India’s fast growth episode was propelled by exports of IT services. It was indeed an export-led growth. However, unlike China’s or South Korea’s growth through manufactured exports that absorbed low-skilled labour in vast numbers, India’s growth episode was led by a high-skilled service sector that failed to adequately absorb unskilled labour from agriculture.

In the early 1990s, India could have also developed its manufacturing exports like China and South Korea. But there were several major obstacles: restrictive labour laws that created incentives for keeping the scale small; an outdated land acquisition law that made the process of acquiring land extremely messy; weak infrastructure limiting access to power, ports and roads and, most importantly, a badly educated labour force. Successive governments have found it challenging to address, let alone overcome, these obstacles.

India has some unique problems that make any progress on this front difficult. First, any laws pertaining to agriculture and land are in the State List of the Constitution. This means that each state makes its own laws. The Centre can only override them if and only if they are repugnant to a law passed by Parliament. Land is also designated by whether it is agricultural land or not. In order to locate a large industrial project on any land designated as agricultural land, the state government needs to buy it from the farmers and sell it to the industrial house or change the land-use classification of the concerned area. In most states, this is a source of massive corruption and creates incentives for state politicians to block any attempt by the Centre to change these laws.

Labour laws are in the Concurrent List of the Constitution. This means that the residual powers remain with the Centre, and the Central Government has greater degrees of freedom to change the laws. Yet, successive governments have found it politically difficult to do so. Rajasthan made some changes under the Bharatiya Janata Party (BJP) state government, but these changes were marginal.

The existing laws are set up so as to put more restrictions on larger employers, especially with regard to adjusting the work force in response to changes in demand. This discourages attaining scales that would allow Indian manufacturers to compete internationally.

These laws can be endured in situations where demand does not move cyclically, which was the case in India for many years in the past.

However, international markets are notoriously cyclical, and firms need to adjust their output with a fair degree of flexibility.

More importantly, since the mid-1990s, the Indian economy too has been displaying distinct business cycle behaviour, which makes the impact of these laws even more damaging. In fact, this could be an important factor driving the process of automation and robotics in Indian industry.

After China entered the World Trade Organization (WTO) in 1999, it went on to occupy most of the unfilled space in the developed countries’ markets for manufactured goods. “Made in China” became a universal brand. It became much more difficult for countries like India to compete with China after that. In addition, the climate for international trade has recently changed. Developed countries have witnessed a denuding of their manufacturing sectors and the widespread resentment due to it has led to the election of right wing nationalists like Donald Trump. Countries such as the US are not so receptive any more to importing cheaper goods from low wage countries.

Moreover, Indian workers now have to compete not just with Chinese and Vietnamese workers but also with robots and artificial intelligence. Even in India, firms have strong incentives to make production more capital-intensive. This is not just because of labour laws but also because long-term interest rates are not that much higher than short-term interest rates. The long and short of this is that inclusive growth in India is a far more difficult prospect for India in 2020 than for China in 2000.

Yet, we must ask how other democratic nations like Thailand, Malaysia, and Indonesia have managed to solve these problems. Especially the problem of skilling the labour force. Even Bangladesh managed to develop a strong textile sector that could compete in international markets. When primary and secondary education itself fails to impart basic literacy and numeracy, any subsequent skilling programme is bound to fail. Why has public education been such a challenge for India?

The genesis of India’s present problems of a lack of job creation and rural distress lies in these factors.
 

Why did the growth of domestic investment and consequently the rate of gross capital formation slow down after 2008?

It is important to note that the Asian success stories including that of China were based on an extremely high rate of investment. You need investment to create jobs and wages by bringing in new technology as well as by adding more capital (machines). India’s investment rate has not been bad at all, compared to the other Asian countries, except China. But it has faltered of late, particularly post the Global Financial Crisis of 2008.

Why did the growth of domestic investment and consequently the rate of gross capital formation slow down after 2008?

 

4. Investment Slowdown

To understand the present slowdown it is useful to examine the ups and downs in the rate of domestic investment or gross domestic capital formation (GDCF) as a percentage of GDP between 2001 and 2018 as in Chart 1 below.

 

It is easy to see that GDCF as a percentage of GDP grew impressively from 25.3% in 2002 to 30.7% to 2004, then kept growing to 35.8% in 2007 (the highest rate of investment reached so far). This was a high growth period for the Indian economy. However, it was also a period of high credit growth. The investment spree was financed by heavy borrowing by the corporate sector. Corporate exuberance during the boom period of 2002-08 partly explains the present state of indebtedness of the corporate sector, but it is a necessary corollary to a high investment/high growth development process.

In the aftermath of the Global Financial Crisis of 2007-08, corporate investment fell. The post-2011 period is a period of decline in investment as massive corruption scandals rocked the Indian economy and the corporate sector faced a backlash from watchdogs like the CAG and from investigation agencies like the CBI etc. There was some recovery after 2014 but that was torpedoed by demonetisation at the end of 2016. Initial exuberance during the high growth period of 2002-08 and then the shock of the 2008 financial crisis are the root causes of corporate indebtedness of today.

There was a major slump in international demand after the 2008 crisis and inevitably Indian exports slumped. There is no doubt that the slowdown in the Indian growth rate as well as in domestic investment should be attributed to this world-wide phenomenon.

What is surprising is the fact that the GDCF rate does not decline that much and in fact recovers to 34.3% in 2011. A plausible explanation for this is that in 2008 international food prices rose due to many extraneous reasons, including because following high oil prices, large food producers in North and South America shifted their land to cultivation of crops to produce crops for gasohol. This rise in world prices pulled up domestic agricultural prices in India. (Minimum support prices — MSPs — were repeatedly raised during this period.) As a result, the terms of trade shifted in favour of agriculture. This most likely brought about a significant redistribution of income in favour of the rural sector which, in turn, gave a boost to investment in the informal sector. This compensated to some extent a fall in corporate investment.
 

[A] change in the terms of trade probably played a significant role in maintaining a high rate of investment even after 2008.

This hypothesis is supported by the fact that this was also a period of rising rural wages and declining poverty numbers. Perhaps the introduction of the National Rural Employment Guarantee Scheme (NREGS) helped to some extent. But the scheme took several years to get going in many parts of the country. We believe that a change in the terms of trade probably played a significant role in maintaining a high rate of investment even after 2008.

This episode does offer a clue as to how a transfer from the urban to the rural sector suggests itself as an antidote to the present slump in aggregate demand. This is an issue that we will explore toward the end of this essay.

GDCF declined steadily from 34.31% to 28.73% in 2015 and has stayed stagnant thereafter. There are two big reasons for this. First, by 2015, it had started to become clear that the Indian corporate sector was heavily indebted. As debt soared, investment growth declined. Also, at the end of 2016, the Indian economy had to suffer the enormous shock of demonetisation that hit the informal sector especially hard. A decline in the demand from the informal sector also resulted in unsold inventories of the corporate sector. In a 2017 report, Credit Suisse pointed out that 40% of corporate debt was held by firms that could not hope to earn enough to even cover their interest costs. There was an alarming growth in corporate debt. It grew from 34.2 % of GDP in 2002 to 56.8% of GDP in 2018. (https://fred.stlouisfed.org/series/QINPAM770A, Original Source: Bank of International Settlements.)

Why did corporates over-borrow? Was it just irrational exuberance? Or was it the result of the weakness of the Indian banking system? Unfortunately, it was both. After the heady days of fast growth from 2002 onwards, faster growth was anticipated despite the fact that world demand had slackened. Corporates invested heavily on the back of bank credit. Infrastructural investments, clearly essential for long-term development, also reached a peak around 2012.

Much more importantly, there is systemic moral hazard built into the Indian banking sector. Public sector banks can always rely on public revenues to bail them out. As a consequence, they have never bothered to develop a decent risk assessment system. Moreover, politicians have often directed them to loan money to their pet projects. For example, there is the present government’s MUDRA programme that obliges banks to give small loans to informal sector businesses without collateral. Or, periodic loan waivers to farmers. All this has made the Indian banking sector prone to moral hazard.
 

Infrastructural projects are typically long gestation projects. They take a long time to complete and a long time to start yielding financial returns. To preclude the strain on public revenues, the government resorted to Public Private Partnerships (PPPs). It was both, the public sector banks as well as private banks, that provided funding for these projects. Both types of lenders exhibited poor risk assessment. Non-bank financial corporations (NBFCs) also joined in the lending spree and faced even fewer obstacles in doing so as they were not constrained by even the kind of regulation that commercial banks have to observe.

There was a great deal of infrastructural building during the years 2006 to 2012. Infrastructural investment went from 4.7% of GDP in 2006 to 8.4% of GDP in 2012 and then declined to 5.1% in 2013. It very gradually rose very slightly to 5.6% of GDP by 2017².

Large-scale projects have to face many hurdles – acquiring land and then getting environmental clearances being two of the most difficult ones. Even the most recent land acquisition legislation (2013) makes acquiring land for industrial production a complex and time-consuming process. You can now understand why private investors especially those who had borrowed for infrastructural projects ended up defaulting on their loans. If the project gets stuck in legal wrangles for a few years, the horizon for getting returns from the project moves away while they are obliged to pay interest on their loans over a longer period. At some point, the project becomes worthless and investors walk away or default.
Roads and power stations can remain half built and end up as non-performing assets on the balance sheet of the lending agency. See Chart 2 to appreciate the rise in non-performing loans ratio (defined as the ratio of ‘loans overdue by more than 90 days to the total loans (which defines a NPA)’) over the last decade. Notice how steeply it goes up after 2015.

This article first appeared in The India Forum

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