Misery Index: Who's Less Miserable? India or Pakistan?
Pakistanis are less miserable than Indians in the economic sphere, according to the Hanke Annual Misery Index (HAMI) published in early 2021 by Professor Steve Hanke. With India ranked 49th worst and Pakistan ranked 39th worst, both countries find themselves among the most miserable third of the 156 nations ranked. Hanke teaches Applied Economics at Johns Hopkins University in Baltimore, Maryland. Hanke explains it as follows: "In the economic sphere, misery tends to flow from high inflation, steep borrowing costs, and unemployment. The surefire way to mitigate that misery is through economic growth. All else being equal, happiness tends to blossom when growth is strong, inflation and interest rates are low, and jobs are plentiful". Several key global indices, including misery index, happiness index, hunger index, food affordability index, labor force participation rate, ILO’s minimum wage data, all show that people in Pakistan are better off than their counterparts in India.
Hanke's Misery Index:
Hanke's Annual Misery Index (HAMI) ranks Pakistan 49th (32.5) and India 39th (35.8) most miserable for year 2020. Bangladesh is significantly better than both India and Pakistan with a misery index of 14 and rank of 129. Venezuela ranks number 1 as the world's most miserable country followed by Zimbabwe 2nd, Sudan 3rd, Lebanon 4th and Suriname 5th among 156 countries ranked this year. The rankings for the two South Asian nations are supported by other indices such as the World Bank Labor Participation data, International Labor Organization Global Wage Report, World Happiness Report, Food Affordability Index and Global Hunger Index.
|Hanke's Annual Misery Index 2021. Source: National Review|
Employment and Wages:
Labor force participation rate in Pakistan is slightly above 50% during this period, indicating about 2% drop in 2020. Even before COVID pandemic, there was a steep decline in labor force participation rate in India. It fell from 52% in 2014 to 47% in 2020.
|Labor Force Participation Rates in Pakistan (Top), India (bottom). Source: Trading Economics|
The International Labor Organization (ILO) Global Wage Report 2021 indicates that the minimum wage in Pakistan is the highest in South Asia region. Pakistan's minimum monthly wage of US$491 in terms of purchasing power parity while the minimum wage in India is $215. The minimum wage in Pakistan is the highest in developing nations in Asia Pacific, including Bangladesh, India, China and Vietnam, according to the International Labor Organization.
|Monthly Minimum Wages Comparison. Source: ILO|
The impact on livelihoods of workers in developing nations during the COVID pandemic has varied depending on the size of the informal work forces, according to The Economist magazine.
|Workers in Informal Economy of Selected Developing Countries. Source: The Economist|
Most countries with large informal work forces have recovered but India's jobs crisis has only deepened since the start of the COVID19 pandemic. Latest CMIE data indicates that employment rate in India was just 37.34% in November, 2021.
|Asian Employment Rates.|
|History of Inflation in Pakistan. Source: Statista|
|Hunger Trends in South Asia. Source: Global Hunger Index|
Amid the COVID19 pandemic, Pakistan's World Happiness ranking has dropped from 66 (score 5.693) among 153 nations last year to 105 (score 4.934) among 149 nations ranked this year. Neighboring India is ranked 139 and Afghanistan is last at 149. Nepal is ranked 87, Bangladesh 101, Pakistan 105, Myanmar126 and Sri Lanka129. Finland retained the top spot for happiness and the United States ranks 19th.
|Pakistan Happiness Index Trend 2013-2021|
One of the key reasons for decline of happiness in Pakistan is that the country was forced to significantly devalue its currency as part of the IMF bailout it needed to deal with a severe balance-of-payments crisis. The rupee devaluation sparked inflation, particularly food and energy inflation. Global food prices also soared by double digits amid the coronavirus pandemic, according to Bloomberg News. Bloomberg Agriculture Subindex, a measure of key farm goods futures contracts, is up almost 20% since June. It may in part be driven by speculators in the commodities markets. These rapid price rises have hit the people in Pakistan and the rest of the world hard. In spite of these hikes, Pakistan remains among the least expensive places for food, according to recent studies. It is important for Pakistan's federal and provincial governments to rise up to the challenge and relieve the pain inflicted on the average Pakistani consumer.
Pakistan's Real GDP:
Many economists believe that Pakistan’s economy is at least double the size that is officially reported in government's Economic Surveys. The GDP has not been rebased in more than a decade. It was last rebased in 2005-6 while India’s was rebased in 2011 and Bangladesh’s in 2013. Just rebasing the Pakistani economy will result in at least 50% increase in official GDP. A research paper by economists Ali Kemal and Ahmad Wasim of PIDE (Pakistan Institute of Development Economics) estimated in 2012 that the Pakistani economy’s size then was around $400 billion. All they did was look at the consumption data to reach their conclusion. They used the data reported in regular PSLM (Pakistan Social and Living Standard Measurements) surveys on actual living standards. They found that a huge chunk of the country's economy is undocumented.
Pakistan's service sector which contributes more than 50% of the country's GDP is mostly cash-based and least documented. There is a lot of currency in circulation. According to the State Bank of Pakistan (SBP), the currency in circulation has increased to Rs. 7.4 trillion by the end of the financial year 2020-21, up from Rs 6.7 trillion in the last financial year, a double-digit growth of 10.4% year-on-year. Currency in circulation (CIC), as percent of M2 money supply and currency-to-deposit ratio, has been increasing over the last few years. The CIC/M2 ratio is now close to 30%. The average CIC/M2 ratio in FY18-21 was measured at 28%, up from 22% in FY10-15. This 1.2 trillion rupee increase could have generated undocumented GDP of Rs 3.1 trillion at the historic velocity of 2.6, according to a report in The Business Recorder. In comparison to Bangladesh (CIC/M2 at 13%), Pakistan’s cash economy is double the size. Even a casual observer can see that the living standards in Pakistan are higher than those in Bangladesh and India.
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According to the State Bank of Pakistan (SBP), the currency in circulation has increased to Rs. 7.4 trillion by the end of the financial year 2020-21 as compared to the previous level of the last financial year in which it stood at Rs. 6.7 trillion, showing a double-digit growth of 10.4 percent year-on-year.
The currency in circulation is the overall currency consisting of various denominations of banknotes being used as money in an economy for the exchange of goods and services and informal savings, excluding the financial sector.
The size of Pakistan’s economy has increased significantly, which showed the double-digit growth in currency in circulation, said Tahir Akbar, Head of Research at Arif Habib Limited. It is pertinent to mention here that Pakistan’s GDP grew by 3.94 percent, which was well above the target set for the financial year 2020-21 of 2.1 percent, and COVID-19 induced contraction of 0.47 percent in FY20.
Accordingly, the banking regulator issued currency notes in order to meet the requirements of the local economy. The banknote printing charges of SBP increased to Rs. 15.762 billion in FY21 from Rs. 13.325 billion in FY20, thereby registering an increase of 18 percent mainly due to larger volumes of printing and an increase in printing rates.
The CIC of the country stands from 28 to 30 percent viz-a-viz the volume of broad money size, he further said. This is the average percentage of CIC when Pakistan is compared with similar economies. On the other hand, the CIC percentage is less than 20 percent of the broad money in most of the developed countries, where the digitization of the economy is much higher than in Pakistan.
Besides, the currency in circulation stands at Rs. 7.4 trillion, the value of money deposits maintained by the banking system of the country stood at Rs. 19.2 trillion, which is in addition to the value of assets and investments made by the country.
Financial Inclusion and Digitization of Banking System
The higher currency in circulation also means that the size of Pakistan’s undocumented economy is huge. Besides, the cash available in the economy also causes a factor of money-led inflation.
Since the last decades, the banking regulator along with the private sector has been working aggressively towards the financial inclusion of the economy through introducing various new avenues such as branchless banking, mobile and internet banking, payment cards, payment gateway operators, POS operators, digital wallets, QR payments, etc.
The use of digital means for the transaction of money has increased tremendously, but there is a big room for improvement, which needs customers’ confidence over these tools on the one hand, whereas the literacy of electronic banking is also needed on the other hand.
A senior banker and founder of branchless banking in Pakistan, Nadeem Hussain, told ProPakistani,
Yes, the cash in circulation is increasing because the parts of our economy which are not under the tax net usually accept cash and the volumes are growing. This means the service sector especially real estate , Kiryana stores, freelancers , plumbers/dentists/electricians,
He pointed out that the country’s service sector constitutes 50 percent of the economy and the bulk of it is cash-based.
In FY20, the volume of paper-based transactions within the banking sector stood at Rs. 151 billion as compared to transaction volume through electronic or digital banking standing at Rs.86 billion. The electronic banking transactions registered year-on-year growth of 31.1 percent, which implies an increase in the adoption of digital means for payments.
Especially in the jeans wear section, these high-quality Pakistani products are increasingly popular with Chinese consumers.
According to the Pakistani government, the textile industry contributes nearly 60% to the country’s total exports. Denim fabric, as one of Pakistan’s main garment products exported to the world, occupies a pivotal position in its garment industry chain.
According to the Pakistan Bureau of Statistics (PBS), exports of denim fabric from Pakistan reached Rs96.92 billion during the year 2017-18, a commendable performance of the denim sector.
However, whether it is jeans wear or other garment products, the impact of recent global cotton prices and other factors cannot be ignored.
Pakistani industrialists argue that the textile and garment industry of the country faces a series of challenges, including low production of cotton and difficulty in obtaining financing for new facilities.
Cotton industry: China-Pakistan cooperation
Pakistan, one of the world’s largest cotton producers, is finding it increasingly hard to meet its own needs.
“Last year, we had to import more than 50% of cotton,” said Sapphire Fibre Executive Director Muhammad Abdullah. Low production and quality force the local industry to choose imports.
“So far, the domestic consumption of cotton is 14 million bales. Nevertheless, Pakistan only harvested 5.6 million bales of cotton in the last season,” he said.
“As far as I am concerned, the seed of high quality must be the top priority. Unless we can increase the yield per unit area, the demand cannot be met,” he added.
The idea of Muhammad Abdullah was echoed by Central Cotton Research Institute Director Zahid Mehmood. “Under CPEC, we hope to see the plan between China and Pakistan in cottonseed cooperation soon,” he said.
Regarding this, Xinjiang Agricultural University Deputy Dean Chen Quanjia introduced further planning during an interview with China Economic Net.
“Local high temperature-resistant cotton varieties in Pakistan are of great use to us,” Quanjia said. “In Xinjiang, the heat resistance of cottonseed is particularly indispensable when facing the extreme high temperature. At the same time, our high-yielding cotton varieties are also needed for Pakistani farmers,” he said.
Recently, international cotton futures have remained high, and China’s domestic cotton futures prices have also risen simultaneously.
According to a survey conducted by the China Cotton Association, the country’s cotton planting area this year has dropped year-on-year, but due to favourable weather conditions, the total output remains relatively stable.
It is expected to be 5.83 million tons, down 1.5% year-on-year. Improving cotton production to maintain the stability of the futures market will be a problem, demanding prompt solutions from China and Pakistan.
Besides, the impurity, which is caused by 100% manual picking, also worsens the dilemma of Pakistan cotton.
Sapphire Fibre cotton field supervisor Kamran Razaq said that the impurity content of imported cotton is 4.5%, while the counterpart in Pakistan cotton is 8-9%, which is well below the criteria of textile mills.
Accordingly, Xinjiang Agricultural University and University of Agriculture Faisalabad (UAF) have set up experimental fields in Faisalabad and plan to test mechanical picking in Pakistan.
“In north Xinjiang, one of the biggest cotton areas in China, the mechanisation can reach 90%. We use machine picking everywhere so as to decrease the impurities,” Chen Quanjia said, adding that in future, China’s advanced cotton pickers can play a role in Pakistan as well.
Apart from raw material shortage, financing difficulty is also a restraining factor in Pakistani textiles. In this regard, China and Pakistan are seeking for a wider cooperative space.
پاکستانی رپے کی ڈالر مقابل قدر میں یقینناً بڑی کمی ہوئی مگر پورے سال 2021 کا جائزہ لیں
توکئی کلیدی کرنسیز کے مقابلے میں پاکستان رپے کی 8.3 فیصد کمی بہت چونکا دینے والی نہیں ترکی کا لیرا 42 فیصد ارجنٹائن پیسو 16.2 جاپانی ین 10.2 ہنگری پولینڈ وغیرہ کی کرنسی قدر لگ بھگ اتنی ہی گریں
Every year, a thick smog covers India’s capital New Delhi. Last week, it got so bad for the 20 million residents that authorities shut schools.
New Delhi’s concentration of PM2.5 particles, which damage people’s lungs, is 34 times the World Health Organization’s (WHO) acceptable levels. The toxic haze is especially bad during the winter as farmers burn stubble left in their fields.
Air quality is determined by the levels of air pollutants PM2.5, PM10, ozone, nitrogen dioxide, sulfur dioxide, and carbon monoxide.
Particulate matter (PM) comprises tiny particles that negatively impact health. PMs vary in size, most damaging are PM2.5 and PM10 – with a diameter of less than 2.5 μm and 10μm respectively. A human hair’s diameter is 50-70 μm.
PM2.5 levels lower than 12 are considered good, 55-150 unhealthy and 250 or above is hazardous.
In 2020, India had 46 of the world’s 100 most polluted cities, followed by China (42), Pakistan (6), Bangladesh (4), Indonesia (1), and Thailand (1), according to air quality tracker IQAir. All these cities had a PM2.5 air-quality rating of more than 50.
Nine out of the top 10 most polluted cities are in India.
Hotan, in western China’s Xinjiang, had the worst average air quality in 2020, with 110.2.
In 2019, 1.67 million deaths in India were caused by air pollution, according to the Lancet.
While replacing solid fuels with alternatives has lowered deaths linked to household air pollution since 1990, deaths related to ambient PMs have increased.
Fifteen of the 20 most polluted cities are in India, mostly in the north. Stubble burning spikes pollution in autumn and winter. Vehicle emissions, industry, and burning rubbish also contribute to high levels of PM2.5 and other pollutants.
Some Indian and Chinese cities have installed smog towers to try to tackle air pollution
New Delhi installed two after an order by India’s Supreme Court – one is in a busy shopping area.
The $2m 25-metre (82-foot) high tower’s 40 fans take in particle-laden air at 1,000 cubic metres (35,000 cubic feet) per second and pass it through filters.
The smog tower works within a one kilometre (0.6-mile) radius, supposedly cutting PM2.5 levels by 50 percent. But questions remain over how efficient they really are.
According to the WHO, some 7 million people die annually as a result of air pollution. More than 90 percent of the world’s population lives in areas where air pollution exceeds WHO limits.
Air pollution is linked to a number of illnesses including asthma, diabetes, and heart disease.
Fitch Ratings-Hong Kong-24 November 2021: Fitch Ratings believes Pakistan’s recent policy adjustments and demonstrated access to external financing, as well as its commitment to a market-determined exchange rate, offset rising external risks from a widening current-account deficit. Ongoing reforms, if sustained, could create positive momentum for the sovereign’s ‘B-’ rating, which we affirmed in May 2021 with a Stable Outlook.
Increases in global energy prices and a strong domestic recovery from the initial Covid-19 pandemic shock have put additional strains on Pakistan’s external position. The current-account deficit in the fiscal year to June 2022 is set to be wider than our previous forecast of 2.2%. The State Bank of Pakistan (SBP) on 19 November 2021 raised its policy rate by a significant 150bp to 8.75%, pointing to rising risks related to the balance of payments and inflation.
We think external liquidity pressures should be manageable in the near term, despite the wider current-account deficit, given Pakistan’s adequate foreign-exchange reserves and success in accessing financing.
Official reserve assets nearly doubled to USD24.1 billion by end-September 2021 from USD12.6 billion two years ago. However, liquid foreign-exchange reserves have dropped since mid-September, which we believe may partly reflect debt repayment.
Pakistan’s near-term financing efforts have been supported by Saudi Arabia, which plans to place USD3 billion on deposit with the SBP and provide an additional USD1.2 billion oil-financing facility under a one-year support package. Its foreign reserves also received a USD2.8 billion boost in August from the IMF’s one-off global allocation of Special Drawing Rights.
Funding from these sources followed Pakistan’s successful international debt issuance through a USD2.5 billion bond in March 2021 and a follow-on USD1 billion bond as part of its global medium-term note programme. Pakistan aims to tap debt markets more regularly through the scheme, which could reduce the costs of coming to market. The authorities also plan new sukuk issuance in 2021.
Pakistan’s economy rebounded during FY21: SBP
In its annual report titled ‘State of Pakistan’s Economy’ — which reviewed FY21 — the central bank stated that the expansion in economic activity was accompanied by a 10-year low current account balance that contributed to a significant build-up in foreign exchange reserves.
“The fiscal deficit also edged down despite COVID-related spending, leading to an improvement in the public debt-to-GDP ratio, unlike the experience of most countries across the world,” a statement issued by the SBP read.
Per the report, headline inflation — based on the consumer price index (CPI) — also eased during the year mainly due to “relatively stable prices of non-food and non-energy items.” However, overall price levels, especially of food items, remained high owing to supply-side challenges.
Furthermore, average headline CPI inflation fell to 8.9% in FY21 — within the SBP’s forecast range of 7-9%.
“The resurgence in domestic demand did not translate into inflationary pressures amidst the presence of some spare capacity in the economy,” it stated.
It is pertinent to mention here that the inflation remained volatile during the year, because of the impact of the increase in fuel prices and power tariffs.
The report notes that the economic turnaround was facilitated by management of the COVID health pandemic, as well as a prompt and targeted monetary and fiscal response to counter its impact on economic growth and livelihoods.
The SBP’s liquidity support amounted to around 5% of GDP by the end of FY21, featuring a combination of policy rate cuts as well as several targeted and time-bound measures, such as the Temporary Economic Refinance Facility (TERF) for promotion of new investment, Rozgar payroll financing scheme to prevent layoffs, the Refinance Facility to Combat COVID to provide concessional financing to construct hospitals and facilities to fight against COVID, and temporary loan deferments and restructurings to provide temporary liquidity relief to small and big businesses as well as individual borrowers.
The report highlights that a broad-based recovery in real GDP growth was recorded. Led by the favourable supply and demand dynamics as well as a low base effect from the COVID-led contraction in FY20, large-scale manufacturing posted a 14.9% increase in FY21.
It further revealed that although the growth in agriculture was slightly lower than in FY20, the production of wheat, rice and maize rose to historic levels.
“The cumulative increase in the production of these crops offset the decline in cotton production," it noted.
"The improvement in the commodity-producing sectors and a surge in imports led to a sharp recovery in wholesale and trade services in FY21,” the statement read.
The central bank’s report also notes that the economic rebound was achieved without a worsening of macroeconomic imbalances, as the overall policy mix was “still prudent”.
The current account deficit reduced substantially amid record-high workers’ remittances and export receipts and contributed to the $5.2 billion increase in the SBP’s foreign exchange reserves during the year. The country also retained access to sizable external financing, with inflows received from the IMF and other multilateral and bilateral creditors; the issuance of Eurobonds after a long hiatus; and deposits and investments from non-resident Pakistanis via the Roshan Digital Accounts.
The central bank points out that the recovery in exports was driven by the “continued adherence to the market-based exchange rate system; provision of subsidised inputs; lower duties on imported raw materials; and the fast-tracking of GST refunds”.
During FY21, the higher exports partially offset a significant rise in import payments, which surged amidst the upswing in economic activity; supply-side challenges in wheat, sugar and cotton; and elevated international commodity prices.
“These pressures became more prominent towards the end of the year, leading to a 3% depreciation of the Pakistani rupee against the US dollar during the fourth quarter (July-March),” the central bank reported, noting that the local currency had appreciated 10%, mainly due to the “accumulated current account surpluses”.
Meanwhile, the fiscal deficit reduced to 7.1% of GDP, from 8.1% in FY20. “Restrained non-interest current expenditures allowed for undertaking spending on social safety nets, the economic stimulus package and provision of targeted support to various sectors of the economy,” said SBP.
Tax collection improved
On the revenue side, the Federal Board of Revenue’s tax collection improved sharply, in the wake of the economic rebound, a surge in imports, and efforts to streamline tax administration.
The report noted that with the containment of the twin deficits and currency appreciation, the public debt-to-GDP ratio declined to 83.5% in FY21.
Investors must be wondering what promise New Delhi will break next as the ruling party tries to win upcoming state elections. First, the government made a U-turn on the three laws that Prime Minister Narendra Modi wanted to use to shake up the stagnant farm economy. Next, he may delay implementing the four codes that have been billed as the “biggest labor reforms in independent India,” as Bloomberg News reported. Has the Modi momentum finally come up against a wall?
Take the labor laws passed by parliament in September last year. So far, only 10 out of India’s 28 states have followed through by finalizing rules on industrial relations, wages, social security and workplace safety. Considering Modi’s party is in power in 17 states, politicians clearly fear resistance.
It’s been a longtime demand by the business community that industrial units with fewer than 300 workers shouldn’t require government permission to fire employees. (The federally mandated limit currently affects factories employing more than 100 workers, acting as a perverse incentive against growth, though some states have relaxed the rules.) Still, codifying this concession won’t exactly win votes. Similarly, giving a legal boost to retirement nest-eggs — as the new rules demand — will ultimately benefit employees. Yet they won’t be thrilled if it means lower take-home pay now.
Why is it so hard for a powerful — and, after more than seven years in the top job, still highly popular — leader to enforce his will? Modi promised sweeping, productivity-enhancing changes to factors of production — land, labor and capital. He also pledged a revamp of crucial commodity markets like food. In each instance, being perceived as pro-big business was the undoing of his policies.
The first setback was land. The previous government, battling popular anger for allowing land grabs in the name of special economic zones, had passed an acquisition law in 2013 that big business found too restrictive. Within a year of becoming prime minister, Modi tried to tilt the balance so that village plots could be acquired more easily for infrastructure or affordable housing. But opposition leader Rahul Gandhi mocked him in parliament for favoring crony capitalists dressed in “suits and boots.” Modi gave up the idea.
Ditto the controversial agriculture laws. Modi backed them to the hilt against relentless protests by farmers. But since the overall package gave the impression that the state was going to retreat from grain procurement, leaving farmers at the mercy of large business groups, it became too hot a potato to hold through next year’s state elections in Uttar Pradesh and Punjab. So Modi dropped his ambitious plan, closing the door at least for some years on reforms of the subsidy-ridden farm and food economy. Now it looks like the new labor codes are going into cold storage, too.
Meanwhile, reforms to improve capital allocation in the economy are a mixed bag. Despite opposition from bank employees’ unions, a bill — to be introduced in the upcoming winter session of parliament — will pave the way for privatizing two state-run lenders. Investors will pay attention to the fate of this law. They should also closely watch the government’s 6 trillion rupees ($80 billion) asset recycling plan. This, too, could potentially become a political minefield.
The Saudi Fund for Development on Monday signed two agreements worth $4.2 billion with Pakistan. The deals aim to support the Pakistani economy.
The first agreement includes a $ 3 billion deposit to the State Bank of Pakistan to support the country’s foreign currency reserve levels and mitigate the impact of the coronavirus disease pandemic. The second deal seeks to support Pakistan in financing oil derivatives trade with $1.2 billion.
The South appears better placed. In 1991, on economic reform-eve, Bihar and Tamil Nadu were nearly at par in per capita GDP. Three decades later, TN has whittled down its multidimensionally poor to 4.9% of population while Bihar languishes at 51.9%. Jharkhand follows with 42%, UP 38% and MP 37%. The cruel governance irony of these numbers is that the four laggard states cumulatively account for 30% of seats in Lok Sabha and their electoral outcomes play a decisive role in national government formation. https://timesofindia.indiatimes.com/blogs/toi-editorials/heartland-misery-four-states-hosting-30-of-lok-sabha-seats-are-among-the-poorest-thats-a-message-for-india/
The heavy poverty burden, despite tremendous political heft and massive welfare funding, indicts heartland netas. Poor states cannot afford their enduring obsession with identity politics, but a shift in discourse towards economic development looks unlikely. Meanwhile, farm laws’ reversal makes poverty eradication in villages harder. Accounting for nearly 5 crore of India’s 12.5 crore unviable agricultural land holdings under 2 hectares, the failure of these four states to call out the subsidised big farmers and lead the clarion call for agri-reforms was another missed opportunity for their political economy.
The multidimensional poverty index constructed on health, education, and standard of living indicators like nutrition, years of schooling, and amenities like cooking fuel, electricity, pucca housing, sanitation, household assets etc, claims to better the erstwhile methodology of pegging a poverty baseline in monetary terms. Performance here depends to an extent on India’s sprawling welfare state, which has admittedly gained more mastery in delivering household amenities to the poor. But NFHS-5 findings of 60% women and young children facing malnutrition uncovers the limitations of welfarism, and conversely, the importance of economic growth to create enough jobs. Over to Nitish, Soren, Yogi, Shivraj, Akhilesh, Tejashwi and Kamal Nath.
Pakistan is a founding member and Tuesday’s election was held by acclamation.
Addressing the group's 45th annual meeting at the United Nation's headquarters in New York, Foreign Minister Shah Mahmood Qureshi urged developing nations to promote a common development agenda to return to the path of sustained and sustainable growth.
As the new chair, "Pakistan hopes to collaborate with members of the group to promote a common development agenda for developing countries that includes debt restructuring, redistribution of the 650 billion new special drawing rights (SDR) to developing countries, and larger concessional financing,” Qureshi said.
SDRs are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF).
The minister also called for the mobilisation of the $100 billion in annual climate finance by developed countries, ending the billions in illicit financial flows from developing countries and the return of their stolen assets.
Qureshi also underlined the need for creating an equitable and open trading system along with a fair international tax regime.
The primary goals of the G77 are to maintain the independence and sovereignty of all developing countries, to defend the economic interests of member states by insisting on equal standing with developed countries in the global marketplace.
It also seeks to establish a united front on issues of common concern, and to strengthen ties between member countries.
As a founding member, Pakistan has contributed consistently to the shared objectives and interests of the group and has had the distinct privilege to chair the group in New York on three occasions in the past.
Qureshi reminded the international community that the world was facing a triple challenge: the Covid-19 pandemic and its consequences, the realisation of sustainable development goals (SDGs) and climate change.
He pointed out that the pandemic and climate change have had a disproportionate impact on developing countries and reversed their progress towards achieving the SDGs by 2030.
Qureshi noted that rich nations had injected over $26 trillion to stimulate their economies and recover from the Covid-19 crisis but “the developing countries have been unable to mobilise even a fraction of the $3-4 trillion they need for economic recovery”.
Noting that the developing world was home to 80 per cent of the world's population, he warned that the disruption of supply chains, and the revived demand in developed economies, had triggered global inflation, compounded the plight of the poor and complicated the debt and liquidity problems of the developing countries.
“Unless the challenges confronting developing countries are addressed and overcome, the world economy will not be able to return to the path of sustained and sustainable growth,” he said. “Islands of prosperity cannot co-exist within an ocean of poverty.”
"The world economy will not succeed in overcoming these challenges, unless developing countries generate adequate financial support to address their debt," Qureshi said, calling for an equitable financial and trade architecture.
“Developing countries need to promote a common development agenda to return to the path of sustained and sustainable growth,” he said.
“Pakistan believes that notwithstanding their current challenges, the greatest potential for economic growth is in the developing world but first it must set out the parameters for equitable global growth and development and realise the promise of a more equal and inclusive world,” he said.
India’s vaccination campaign has helped put the economy back on track. Ms. Kishore forecast growth of 7.8 percent next year, about 2.5 percentage points higher than what it was in 2019. Still, that would leave 2022 output 9 percent lower than she had forecast before the pandemic struck.
NEW DELHI — India’s economy is limping back to life, and its wealthy consumers are finally returning to its malls and stores.
But at Electronics Desire, where the aisles are empty and the sales are slow, the lingering fears of India’s middle class — and the millions who aspire to join them someday — are on full display.
An appliances shop in Ramphal Chowk, a middle-class neighborhood in the New Delhi suburb of Dwarka, Electronics Desire is struggling through its weakest sales in months. Even last year, when a coronavirus lockdown at one point brought the economy to a virtual standstill, sales were better, said Tejendar Singh, the manager.
“Around this time last year we sold 15 to 20 dishwashers,” said Mr. Singh, explaining how customers bought the appliances to keep their maids, and potential Covid-19 infections, out of their homes. “This time, we couldn’t even sell two units.”
On Tuesday, India on paper reported a big jump in growth, of 8.4 percent, in the July-to-September period compared with a contraction of 7.4 percent for the same period a year earlier. But that heady number conceals lingering damage from Covid-19 to an economy that needs to generate a steady number of jobs to keep its young, vast population content. The country’s two waves since early last year have killed hundreds of thousands of people, pushed millions into poverty and robbed the country of more than a year of badly needed growth.
Compared with two years ago, before the coronavirus struck, economic output was 4 percentage points higher, according to the Ministry of Statistics and Program Implementation. Even that figure reflects pent-up demand rather than a healthy rise in gross domestic product, said Priyanka Kishore, the head of India and Southeast Asia for Oxford Economics, a research firm.
“If we talk about the structural hits and the G.D.P. level compared to pre-Covid baselines, it’s still 10 percent or so lower,” she said.
The weak and uneven recovery is putting pressure on Prime Minister Narendra Modi to do something about growth. It is also putting renewed focus on longer-term problems that were weighing down India’s economy even before the pandemic: slowing demand, a manufacturing sector struggling to take off and shrinking labor participation.
For the first time, Indian fertility has fallen below replacement level
When something happens earlier than expected, Indians say it has been “preponed”. On November 24th India’s health ministry revealed that a resolution to one of its oldest and greatest preoccupations will indeed be preponed. Some years ahead of un predictions, and its own government targets, India’s total fertility rate—the average number of children that an Indian woman can expect to bear in her lifetime—has fallen below 2.1, which is to say below the “replacement” level at which births balance deaths. In fact it dropped to just 2.0 overall, and to 1.6 in India’s cities, says the National Family Health Survey (nfhs-5), a country-wide health check. That is a 10% drop from the previous survey, just five years ago.
Slowing growth will reduce long-term pressure on some resources that are relatively scarce in India, such as land and water. The news may have other benefits, too. Politicians have often used fear of population growth to rally votes, typically by accusing “a particular community”—a circumlocution referring to India’s 15% Muslim minority—of having too many babies. Narendra Modi, the prime minister, has warned of a looming population explosion. Members of his Bharatiya Janata Party (bjp) have even called for limits to family size. In July legislators in bjp-controlled Uttar Pradesh proposed a law that would deny government services to families with more than two children.
The Indian government’s new numbers may curtail these execrable suggestions. Fertility among Indian Muslims is generally higher than among Hindus. This is in part because so many are poor. But the difference has steadily narrowed; between 2005 and 2015 the fertility rate among Indian Muslims dropped from 3.4 to 2.6. Data on religion have yet to be parsed from the latest survey, but the fertility rates it shows for India’s only two Muslim-majority territories, the Lakshadweep Islands and Jammu & Kashmir, are far below replacement level and among the lowest in India, at 1.4.
While a declining fertility rate is broadly a sign that India is richer and better educated than before, it will also bring worries. Economists have long heralded the “demographic dividend”, when productivity rises because a bigger slice of the population pyramid is of working age. This window will now be narrower, and India will have to contend sooner with a fast-growing proportion of elderly people to care for.
Stark discrepancies in fertility rates between states also carry dangers. In future more Indians from the crowded north will seek jobs in the richer and less fecund south. Politicians will also face the hot issue of how to allot parliamentary constituencies. Back in 1971 Mrs Gandhi froze the distribution of seats among states. The result is that whereas an mp from Kerala now represents some 1.8m constituents, one from Uttar Pradesh represents nearly 3m. When the freeze on redistricting lifts some time in the next decade, these disparities will spawn a big fight.
It’s a phenomenon many women in Kashmir have experienced in recent years, as rates of infertility among women there have “risen from 12% to 18% over the past two decades,” Dr. Syed Naseer, an infertility specialist in Kashmir, told the FBomb. According to the 2019-2020 National Family Health Survey, the Total Fertility Rate (TFR) in Jammu and Kashmir is 1.4 children per woman, which has declined from two children per woman in 2015-16. Indian census data from 2018 also revealed that the fertility rates in Jammu and Kashmir had decreased to 1.6 from 2.3 in 2007.
Experts point to the decades-long conflict in the region as one of the major reasons for increasing infertility. But while the reason may not be definitive, the impact on women is clear.
“In patriarchal societies, it is mostly a female who is solely held responsible for not begetting a child,” Shefan Jehan Gazi, a practicing lawyer in the Jammu and Kashmir high court, told the FBomb. “If a doctor prescribes medical tests to the males to ascertain the grounds of infertility, most of them hesitate, as they don’t like to take responsibility for the cause. It is very convenient for them to shift the burden on females.”
Not only can the inability to bear children have a profound impact on Indian women’s identities — childless women’s very femininity is questioned — but it can also threaten their relationships, particularly their marriages.
According to Gazi, in about 30% to 40% of divorce cases in Kashmir, infertility is cited as one of the reasons for divorce. A number of national and global studies back up her observation; a 2014 Danish study, for example, found that childless couples are up to three times more likely to divorce than those who have children.
This is what happened to Bilkees Khan, a beauty parlor owner in south Kashmir’s main town Anantnag. Because she is a breast cancer survivor, Khan’s doctor advised her against becoming pregnant. Khan married a man from Doda only after letting him know this information. “I made it clear to him that I might never be able to become a mother, and he was fine with it,” Khan told the FBomb.
A month into Khan’s marriage, however, her in-laws demanded that she have a baby, and Khan bowed to the pressure; she conceived in the first year of her marriage. Ultimately, however, the fetus couldn’t grow due to her health issues, and Khan had an abortion. Additionally, she experienced early menopausal symptoms due to her chemotherapy treatment, making it difficult for Khan to conceive again.
Khan wanted to adopt a child, but her husband did not. Then, the tension escalated.
“He had started ignoring me and never took my financial responsibilities or paid my medical bills,” Khan said.
During a follow-up visit for cancer treatment to Mumbai’s Tata Memorial Hospital, her husband’s cousin broke the shocking news that he had married another woman while still married to Khan.
The social consequences of infertility have left these women not only stigmatized but also depressed; many have turned to mental health experts for treatment. After four unsuccessful in vitro Fertilization (IVF) procedures and intense pressure from her in-laws to have a child, 36-year-old Fozia Jan’s husband began to mistreat her. Her sister-in-law even used to hide her children from Jan because she thought “that I am cursed and I could bring misfortune to her kids. She often asked me to check with an exorcist.”
Jan had suicidal ideations and was forced to move back in with her parents.
“She hardly talks to anyone,” Jan’s mother told the FBomb. “We tried to counsel her, but the constant thought of being childless makes her depressed.”
“I was by myself throughout this quest to have a kid and save my marriage from falling apart. I felt completely unsupported,” Jan said.
Speaking to the media on Friday alongside Adviser to Prime Minister on Commerce Abdul Razak Dawood, Tarin said the public needs to be patient, adding that there is hope that international commodity prices will come down, which would reduce the import bill.
“Economic indicators are moving in the right direction,” said Tarin.
Talking about fundamentals, the advisor said that the tax revenue has increased by 36% year-on-year, a development, he said points to a growing economy.
“The revenue is growing, electricity consumption has increased, and agricultural output has also improved,” he said.
“What we need to see is that all the economic indicators are moving in the right direction. This is a temporary phenomenon (spike in global prices), which is prevalent across the globe including India, US, and UK. We too, will get out of it.”
Referring to the Pakistan Stock Exchange’s (PSX) sell-off the previous day, the advisor said that the media gives “more coverage to negative developments”. “We need to be a little patient, commodity prices in the international market will decline soon.”
Tarin asks provinces to ensure availability of flour in market Meanwhile, talking about inflation that hit a 21-month high at 11.5% in November, Tarin called it ‘imported inflation’.
Tarin said that the positive development is that Pakistan’s exports are increasing, and “hopefully, our remittances and exports together would shrink our trade gap”.
Speaking on the hike in commodity prices, the advisor said that the government is seeing a return of stability in coal and oil prices.
Dawood, the advisor on commerce, said Pakistan’s high import bill was mainly on account of energy and raw-materials.
India's growth of 8.4% over Jul-Sep is welcome news. But it'll be injustice to India if we don't recognize, when this happens after -7.4% growth, it means an annual growth of 0.2% over 2 years. This is way below India's potential. India has fundamental strength to do much better.
Bolstered by a bumper crop, Pakistan is poised to export near-record volumes of rice this season as the country struggles to manage surplus stocks of grain, a minister said on Monday.
Pakistan planned to offer over 8 million tons of rice to foreign buyers as by December around 11.43 million of rice stocks will be available in the market for 3.4 million tons of local consumption.
Syed Fakhar Imam, minister for National Food Security and Research said the country would offer rice worth $5 billion this season for exports to cut its ballooning surplus “but at the same time it’s a challenging task”.
“This year we have over 8 million tons of exportable, worth around $4.85 billion. If we succeed in exporting this surplus rice, it would be a major breakthrough,” Imam told a news conference.
China, Kenya, UAE, Afghanistan and Saudi Arabia were key exports destinations of Pakistani rice over the last five years and imam said the government is mulling to setup a committee or
task force on national level under the supervision and monitoring of the Prime Minister to push rice exports to new markets including. Africa and Latin-America
“Exports have been a major challenge for the country over the last one decade and have been in the bracket of $21 to $25 billion. If this avenue is exploited and the rice is exported, the country can earn more forex and jack up our total exports,’ he added.
Imam said the provincial crops reporting departments have reported a bumper rice crop of 8.96 million tons from 3.5 million hectares during the Karif 2021/22 crop year. Last year the country produced 8.41 million tons of rice.
The government estimates that total available stock by December 2021 will be 11.43 million tons. Deducting 3.40 million tons for domestic consumption, 8.03 million tons is available as exportable surplus.
Of the total exportable surplus, approximately 30 percent is basmati (2.41 million tons). Currently, the average export prices of basmati and coarse rice are $870/ton and $490/ton respectively. At these prices, Pakistan can earn $2.10 billion and $2.75 billion (total $4.85 billion) from the export of basmati and coarse rice, respectively.
Official data showed that the country produced 8.41 million tons of rice and had a carryover stock of 0.51 million tons. Around 8.92 million tons of grain stock is available for domestic consumption and export.
Up to November 2021, approximately 3.1 million tons were domestically consumed and 3.34 million tons was exported. Currently, the country has last year’s carryover stock of 2.47 million tons.
During the last fiscal year, Pakistan exported 3.50 million tons of rice, valuing $2.11 billion. However, rice exports fell 12 percent compared to exports of FY2019-20 due to Covid-19 related disruption in shipments.
“In FY2021-22, our exportable surplus is 128 percent higher than that of last year. Now that the shipment disruption is easing, Pakistan should make every effort to export 8.03 million tons and earn $4.85 billion which will be $2.74 billion more than that of last year,” Imam said.
Merely looking at the traditional metric of the unemployment rate is misleading. Here’s why policymakers should look at ‘employment rate’ if they want to accurately assess the scale of joblessness
In India, as the virus abates, a hunger crisis persists
“The hunger crisis is, in fact, fundamentally reflective of the livelihood crisis,” said Jayati Ghosh, a development economist. People do not have money to buy food, she said, and “that’s both our employment and food systems failing.”
The unemployment rate in April to June of 2020, at the height of the first lockdown, was nearly 21 percent in urban areas, according to government figures. Even as the economy showed signs of revival this year, 15 million jobs were lost in May when a devastating second wave killed hundreds of thousands and brought the health-care system to near collapse.
Nearly 80 percent of India’s workforce makes a living in the informal sector, which economists say was the worst hit. The problem is more pronounced in urban areas like Mumbai, where such workers subsist on their daily income for survival and lack networks or resources such as agricultural land in their home villages.
Sonawane’s work and life came to a sudden halt with the two lockdowns. The five jobs she worked — cleaning and cooking at upscale homes in the high-rise buildings visible from her cramped shanty — disappeared immediately.
Her husband, who worked as a delivery person for a gas company, stayed home. So did her three children, including her youngest son, 7, who would repeatedly ask her in the early days when school would reopen. Now, she said, he has forgotten much of what he had learned, as primary schools in the city have remained shut since the initial closures in March 2020.
After the lockdowns were lifted, Sonawane went back to work. But the world outside had changed.
Two of the families she worked for had left the city, and another told her not to return over coronavirus concerns. Her pre-pandemic income of $160 a month shrank by half. Her husband’s company laid him off.
“We never had food shortages at home” before this, Sonawane said. “We always earned enough to feed the family.”
Right to food
India’s food security law aims to provide free or subsidized food grains to two-thirds of the country’s population, making it the largest safety net in the country. But experts say gaps, its reliance on biometric authentication and a narrow scope have hindered its efficacy.
During the lockdown, the government expanded benefits by providing an extra five kilograms (about 11 pounds) of rice or wheat every month to those eligible, a program that was recently extended to March 2022.
But economists say the law’s coverage needs to account for the increase in population over the past decade, which could bring an additional 100 million people under its purview.
Not far from Chembur, where Sonawane lives, is the working-class neighborhood of Govandi, framed by the country’s largest landfill. In one of the narrow streets is the home of 31-year-old Farhan Ahmad, a father of two, who worked as a driver and is one of the millions of migrants who have fallen through the cracks in the food law.
The five years before the pandemic had been good for Ahmad, who had moved to Mumbai from his village hoping to make a life in the city.
Ahmad signed up to drive with Ola, an Indian multinational ride-hailing company, when a friend lent him a car if he agreed to pay back the loan on it. By the time the coronavirus arrived, he had a small sum set aside in savings. He and his wife debated buying a refrigerator.
“Forget about affording a fridge now,” said Ahmad. “On most days I can’t buy enough food.”
Bangladesh went into lockdown on March 26th, but that didn’t stop Zohirul from taking his bicycle rickshaw out onto the backstreets of Dhaka, the capital, a couple of times. On his first outing he earned just 200 taka, or $2.40, less than a fifth of what he normally makes. On the second he was caught by the police, who beat him, injuring his leg so badly he can no longer pedal his rickshaw. Since then he’s been nursing his wounds and husbanding his stores of rice. “I don’t know how I’m going to earn or buy food once this runs out,” he says.
As Asian governments impose quarantines to curb the spread of covid-19, the continent’s usually hectic streets have gone quiet. Restrictions vary, but almost everywhere the message is the same: stay home. Such measures threaten to ruin the majority of Asians. Seventy per cent of workers in Asia and the Pacific do not have formal jobs, with contracts, salaries or sick leave, but instead do things like driving rickshaws for a living, according to the Economic and Social Commission for Asia and the Pacific (escap), the un agency for the region (see chart). In many places there is not much of a safety net for the poor or unemployed either. Some workers feel they face a choice between getting sick and going hungry.
Governments in poorer Asian countries realise there is little point declaring a lockdown if their citizens cannot afford to abide by one, and so are trying to help. It is a daunting task. Informal workers are “not in the government databases”, says Hamza Malik of escap. Identifying them is “extremely challenging”, according to Guy Ryder, director-general of the International Labour Organisation (ilo). Bureaucrats are consulting censuses or lists of those who already receive some sort of help from the state. But these often miss people, and quickly go out of date. Indonesia’s Unified Database, which contains the details of the poorest 40% of the population—some 100m people—is supposed to be updated twice a year by local governments. However, two-fifths of them don’t have the budget or capacity to do so, reckons Vivi Yulaswati of the planning ministry.
The pandemic makes the task of identifying the needy all the more challenging by swelling their ranks. The ilo estimates that the reduction of working hours in Asia this quarter equates to 125m people losing their jobs. The World Bank expects the impending recession will push up to 11m Asians below a poverty line of $5.50 a day. That may be optimistic. Indonesia may need to start giving handouts to an extra 50m people, Ms Yulaswati speculates.
Inevitably, there have been flaws and oversights. In Bangladesh several local politicians have been arrested for funnelling free rice to friends and supporters. (Zohirul, the injured rickshaw-driver in Dhaka, has yet to receive any.) Technical glitches prevented many Kazakhs from applying for a cash grant. Protesters in Thailand say the handout scheme there is too narrow. Even when assistance does reach the poor, it is seldom enough. The sum being given to the 12m poorest households in Pakistan is 3,000 rupees ($18) a month—less than a fifth of the minimum wage.
Indian Employment data disappoints in November 2021
Headline data on employment in November 2021 is mildly encouraging but the details underlying these are quite disappointing. The encouraging signs are that the unemployment rate declined from 7.8 per cent in October to 7 per cent in November; the employment rate rose by a whisker from 37.28 per cent to 37.34 per cent. This translated into employment increasing by 1.4 million, from 400.8 million to 402.1 million in November 2021.
The first disappointment in the November data is that the labour participation rate (LPR) has slipped. It fell from 40.41 per cent in October to 40.15 per cent in November. This is the second consecutive month of a fall in the LPR. Cumulatively, the LPR has fallen by 0.51 percentage points over October and November 2021. This makes it a significant fall in the LPR compared to average changes seen in other months if we exclude the months of economic shock such as the lockdown.
The fall of October and November seems to suggest that the recovery in the LPR from its recent drop to 39.6 per cent in June 2021 following the second wave of the Covid-19 pandemic has run out of steam. And, a secular decline may set in again. This is what had happened after the recovery from the first wave of the Covid-19 pandemic. LPR crashed from nearly 43 per cent before the first wave of Covid-19 to about 36 per cent. It recovered quickly to 41 per cent and then lost steam. Then, it started sliding slowly to hover just above 40 per cent before the second wave dragged it below 40 per cent during the quarter ended June 2021. The LPR recovered steadily in the second quarter of the fiscal to reach 40.7 per cent by September 2021. But then it slid back to 40.4 per cent in October and then to 40.2 per cent in November.
The two pandemic shocks have lowered the LPR structurally. And, the declining trend has continued at the lowered levels. India now has an LPR which is close to 40 per cent compared to about 43 per cent before the pandemic.
India’s LPR is much lower than global levels. According to the World Bank, the modelled ILO estimate for the world in 2020 was 58.6 per cent
Salaries and pensions increased by 10%
The government has increased the minimum wage from Rs17,500 per month to Rs. 20,000.
Federal Finance Minister Shaukat Tarin on Friday presented the budget for the next financial year 2021-22.
Introducing the budget, the Finance Minister said that low-income earners have been affected more by inflation. In order to reduce the burden of inflation, the minimum wage has been increased from Rs. 17,500 to Rs20,000 per month.
The finance minister said that the salaries of government employees are being increased by 10% and the pensions of retired employees will be increased by 10% from July 1.
In purchasing power parity terms, one PPP US$ is equal to about PKR 40.
So Rs 20,000 per month minimum wage translates to $500 in PPP terms.
INDIA’S LOST DECADE
To answer the question of whether India is back, it is important to first understand when and why India went away. The answer lies in plans that went badly wrong. During the boom years after the turn of the millennium, Indian firms invested heavily, on the assumption of continued rapid growth. So when the financial crisis brought the boom to an end, causing interest rates to soar and exchange rates to collapse, many large companies found it difficult to repay their debts. As companies began to default, banks were saddled with nonperforming loans, exceeding ten percent of their assets.
In response, successive governments launched initiative after initiative to address this “twin balance sheet” problem, initially asking banks to postpone repayments, later encouraging banks and firms to resolve their problems through an improved bankruptcy system. These measures gradually alleviated the debt problem, but they still left many firms too financially feeble to invest and banks reluctant to lend. And with lackluster investment and exports, the economy was unable to recover its former dynamism.
As growth slowed, other indicators of social and economic progress deteriorated. Continuing a long-term decline, female participation in the labor force reached its lowest level since Indian independence in 1948. The country’s already small manufacturing sector shrank to just 13 percent of overall GDP. After decades of improvement, progress on child health goals, such as reducing stunting, diarrhea, and acute respiratory illnesses, stalled.
And then came COVID-19, bringing with it extraordinary economic and human devastation. As the pandemic spread in 2020, the economy withered, shrinking by more than seven percent, the worst performance among major developing countries. Reversing a long-term downward trend, poverty increased substantially. And although large enterprises weathered the shock, small and medium-sized businesses were ravaged, adding to difficulties they already faced following the government’s 2016 demonetization, when 86 percent of the currency was declared invalid overnight, and the 2017 introduction of a complex goods and services tax, or GST, a value-added tax that has hit smaller companies especially hard. Perhaps the most telling statistic, for an economy with an aspiring, upwardly mobile middle class, came from the automobile industry: the number of cars sold in 2020 was the same as in 2012.
Adding to a decade of stagnation, the ravages of COVID-19 have had a severe effect on Indians’ economic outlook. In June 2021, the central bank’s consumer confidence index fell to a record low, with 75 percent of those surveyed saying they believed that economic conditions had deteriorated, the worst assessment in the history of the survey.
Disaffection is also manifest in politics. The national government in New Delhi has been bickering with the country’s state governments for more than a year over the sharing of revenue from the GST. Several states have imposed new residency requirements on job seekers over the past two years, thus directly challenging the principle of a common national labor market. There has also been a revival of the policy of “reservation,” India’s version of affirmative action, in which some jobs are reserved for people from traditionally disadvantaged social groups.
How the State Has Stifled Growth
By Arvind Subramanian and Josh Felman
For the Indian economy to achieve its potential, however, the government will need a sweeping new approach to policy—a reboot of the country’s software. Its industrial policy must be reoriented toward lower trade barriers and greater integration into global supply chains. The national champions strategy should be abandoned in favor of an approach that treats all firms equally. Above all, the policymaking process itself needs to be improved, so that the government can establish and maintain a stable economic environment in which manufacturing and exports can flourish.
But there is little indication that any of this will occur. More likely, as India continues to make steady improvements in its hardware—its physical and digital infrastructure, its New Welfarism—it will be held back by the defects in its software. And the software is likely to prove decisive. Unless the government can fundamentally improve its economic management and instill confidence in its policymaking process, domestic entrepreneurs and foreign firms will be reluctant to make the bold investments necessary to alter the country’s economic course.
There are further risks. The government’s growing recourse to majoritarian and illiberal policies could affect social stability and peace, as well as the integrity of institutions such as the judiciary, the media, and regulatory agencies. By undermining democratic norms and practices, such tendencies could have economic costs, too, eroding the trust of citizens and investors in the government and creating new tensions between the federal administration and the states. And India’s security challenges on both its eastern and its western border have been dramatically heightened by China’s expansionist activity in the Himalayas and the takeover of Afghanistan by the Pakistani-supported Taliban.
If these dynamics come to dominate, the Indian economy could experience another disappointing decade. Of course, there would still be modest growth, with some sectors and some segments of the population doing particularly well. But a broader boom that transforms and improves the lives of millions of Indians and convinces the world that India is back would be out of reach. In that case, the current government’s aspirations to global economic leadership may prove as elusive as those of its predecessors.
Baldev Kumar threw his head back and laughed at the mention of India’s resurgent GDP growth. The country’s economy clocked an 8.4-percent uptick between July and September compared with the same period last year. India’s Home Minister Amit Shah has boasted that the country might emerge as the world’s fastest-growing economy in 2022.
Kumar could not care less.
As far as he was concerned, the crumpled receipt in his hand told a different story: The tomatoes, onions and okra he had just bought cost nearly twice as much as they did in early November. The 47-year-old mechanic had lost his job at the start of the pandemic. The auto parts store he then joined shut shop earlier this year. Now working at a car showroom in the Bengaluru neighbourhood of Domlur, he is worried he might soon be laid off as auto sales remain low across India.
He has put plans for his daughter’s wedding on hold, unsure whether he can foot the bill. He used to take a bus to work. Now he walks the five-kilometre (three-mile) distance to save a few rupees. “I don’t know which India that’s in,” he said, referring to the GDP figures. “The India I live in is struggling.”
Kumar wasn’t exaggerating – even if Shah’s prognosis turns out to be correct.
Asia’s third-largest economy is indeed growing again, and faster than most major nations. Its stock market indices, such as the Sensex and Nifty, are at levels that are significantly higher than at the start of 2021 – despite a stumble in recent weeks. But many economists are warning that these indicators, while welcome, mask a worrying challenge – some describe it as a crisis – that India confronts as it enters 2022.
November saw inflation rise by 14.23 percent, building on a pattern of double-digit increases that have hit India for several months now. Fuel and energy prices rose nearly 40 percent last month. Urban unemployment – most of the better-paying jobs are in cities – has been moving up since September and is now above 9 percent, according to the Centre for Monitoring Indian Economy, an independent think-tank. “Inflation hits the poor the most,” said Jayati Ghosh, a leading development economist at New Delhi’s Jawaharlal Nehru University.
All of this is impacting demand: Government data shows that private consumption between April and September of 2021 was 7.7 percent lower than in 2019-2020. The economic recovery from the pandemic has so far been driven by demand from well-to-do sections of Indian society, said Sabyasachi Kar, who holds the RBI Chair at the Institute of Economic Growth. “The real challenge will start in 2022,” he told Al Jazeera. “We’ll need demand from poorer sections of society to also pick up in order to sustain growth.”
“The decimation of MSMEs is why we’re seeing core inflation, and we should be very worried,” said economist Pronab Sen, former chief statistician of India, referring to an inflation measure that leaves out food and energy because of their volatile price shifts. India’s core inflation stood at more than 6 percent in October. The level of competition in the market has also dramatically shrunk, he said. “Pricing power has shifted to a small number of large companies,” Sen told Al Jazeera. “And it is their exercise of this power that is leading to core inflation.”
When fuel prices rise globally – and subsequently in India – some inflation is unavoidable. But a competitive market usually forces companies to absorb much of that burden in their margins. Without that competition, Sen said, it is easier for firms to pass more of the increased costs on to consumers.
MSMEs have long been the backbone of the Indian labour market, employing 110 million people. Their struggles are a key reason for India’s failure to reduce unemployment rates, Sen added.
In a trend unprecedented since economic liberalisation, the annual income of the poorest 20% of Indian households, constantly rising since 1995, plunged 53% in the pandemic year 2020-21 from their levels in 2015-16. In the same five-year period, the richest 20% saw their annual household income grow 39% reflecting the sharp contrast Covid’s economic impact has had on the bottom of the pyramid and the top.
This stark K-shaped recovery emerges in the latest round of ICE360 Survey 2021, conducted by People’s Research on India’s Consumer Economy (PRICE), a Mumbai- based think-tank.
The survey, between April and October 2021, covered 200,000 households in the first round and 42,000 households in the second round. It was spread over 120 towns and 800 villages across 100 districts.
While the pandemic brought economic activity to a standstill for at least two quarters in 2020-21 and resulted in a 7.3% contraction in GDP in 2020-21, the survey shows that the pandemic hit the urban poor most and eroded their household income.
Splitting the population across five categories based on income, the survey shows that while the poorest 20% (first quintile) witnessed the biggest erosion of 53%, the second lowest quintile (lower middle category), too, witnessed a decline in their household income of 32% in the same period. While the quantum of erosion reduced to 9% for those in the middle income category, the top two quintiles — upper middle (20%) and richest (20%)— saw their household income rise by 7% and 39% respectively.
The survey shows that the richest 20% of households have, on average, added more income per household and more pooled income as a group in the past five years than in any five-year period earlier since liberalisation. Exactly the opposite has happened for the poorest 20% of households — on average, they have never actually seen a decrease in household income since 1995. Yet, in 2021, in a huge knockout punch caused by Covid, they earned half as much as they did in 2016.
How disruptive this distress has been for those at the bottom of the pyramid is reinforced by the fact that in the previous 11-year period between 2005 and 2016, while the household income of the richest 20% grew by 34%, the poorest 20% saw their household income surge by 183% at an average annual growth rate of 9.9%.
Coming in the run-up to the Budget, the task for the Government is cut out.
“As the Finance Minister is finalising her budget proposals for 2022-23 to give shape to the roadmap for economic revival of the country,” said Rajesh Shukla, MD and CEO, PRICE, “we need a K-shaped policy too that addresses the two ends of the spectrum and a lot more thinking on how to build the bridge between the two.”
This couldn’t be more timely. Said PRICE founder and one of the authors of the survey Rama Bijapurkar. “Or else, we are back to a tale of two Indias, a narrative we thought we were rapidly getting rid of. The good news is that we have built a far more efficient welfare state for the disbursal of benefit be it DBT or vaccination for all.”
The survey showed that while the richest 20% accounted for 50.2% of the total household income in 1995, their share has jumped to 56.3% in 2021. On the other hand, the share of the poorest 20% dropped from 5.9% to 3.3% in the same period.
As for India Inc, it has been in a better position to weather the disruption. The pandemic accelerated further formalisation of the economy with large companies benefitting at the cost of smaller ones. The survey also shows that while job losses were quite evident among Small and Medium Enterprises in the casual labour segment, large companies did not witness much of that.
RAJPURA, India (Reuters) - Srijan Upadhyay supplied fried snacks to small eateries and roadside stalls in the poor eastern Indian state of Bihar before COVID-19 lockdowns forced most of his customers to close down, many without paying what they owed him.
With his business crippled, the 31-year-old IT undergraduate this month travelled to Rajpura town in Punjab state to meet with consultants who promised him a work visa for Canada. He brought along his neighbour who also wants a Canadian visa because his commerce degree has not helped him get a job.
"There are not enough jobs for us here, and whenever government vacancies come up, we hear of cheating, leaking of test papers," Upadhyay said, waiting in the lounge of Blue Line consultants. "I am sure we will get a job in Canada, whatever it is initially."
India's unemployment is estimated to have exceeded the global rate in five of the last six years, data from Mumbai-based the Centre for Monitoring Indian Economy (CMIE) and International Labour Organization show, due to an economic slowdown that was exacerbated by the pandemic.
Having peaked at 23.5% in April 2020, India's joblessness rate dropped to 7.9% last month, according to CMIE.
The rate in Canada fell to a multi-month-low of 5.9% in December, while the OECD group of mostly rich countries reported a sixth straight month of decline in October, with countries including the United States suffering labour shortages as economic activity picks up.
Graphic: Unemployment Rate- https://graphics.reuters.com/INDIA-UNEMPLOYMENT/INDIA/zjvqknbzxvx/chart.png
What's worse for India, its economic growth is producing fewer jobs than it used to, and as disheartened jobseekers instead take menial roles or look to move overseas, the country's already low rate of workforce participation - those aged 15 and above in work or looking for it - is falling.
"The situation is worse than what the unemployment rate shows," CMIE Managing Director Mahesh Vyas told Reuters. "The unemployment rate only measures the proportion who do not find jobs of those who are actively seeking jobs. The problem is the proportion seeking jobs itself is shrinking."
Graphic: Labour participation rate (LPR)- https://graphics.reuters.com/INDIA-UNEMPLOYMENT/INDIA-UNEMPLOYMENT/jnvwejnnlvw/chart.png
Critics say such hopelessness among India's youth is one of the biggest failures of Prime Minister Narendra Modi, who first came to power in 2014 with his as yet unfulfilled promise of creating millions of jobs.
It also risks India wasting its demographic advantage of having more than two-thirds of its 1.35 billion people of working age https://data.oecd.org/pop/working-age-population.htm.
The ministries of labour and finance did not respond to requests for comment. The labour ministry's career website had more than 13 million active jobseekers as of last month, with only 220,000 vacancies.
The ministry told parliament in December that "employment generation coupled with improving employability is the priority of the government", highlighting its focus on small businesses.
Modi's rivals are now trying to tap into the crisis ahead of elections in five states, including Punjab and most populous Uttar Pradesh, in February and March.
"Because of a lack of employment opportunities here, every kid looks at Canada. Parents hope to somehow send their kids to Canada," Delhi Chief Minister Arvind Kejriwal, whose Aam Admi Party is a front-runner in Punjab elections, told a recent public function there.
India continued to fare poorly in the world happiness index, with its position marginally improving to 136 as against last year’s 139.
Among the South Asian nations, only Taliban-ruled Afghanistan fared worse than India. Afghanistan was named the most unhappy country in the world, ranking last on the index of 146 countries. Nepal (84), Bangladesh (94), Pakistan (121) and Sri Lanka (127) managed to get better ranks in the list.
Finland topped the list for the fifth time in a row, according to the 10th edition of the World Happiness Report.
Finland was followed by Denmark, Iceland, Switzerland, and the Netherlands. Among other western countries, while the United States managed to bag the 16th position, Britain was ranked 17th and France 20th.
The Happiness report also stated that India was one among the countries that witnessed, over the past 10 years, a fall in life evaluations by more than a full point on the 0 to 10 scale.
The value and volume of banknotes in circulation increased by 9.9% and 5%, respectively, at ₹31,05,721 crore and 13.05 lakh, respectively, the Reserve Bank of India's annual report for 2021-22 shows. Comparatively, the increase in currency in circulation (both value and volume terms) was 16.8% and 7.2%, respectively, during 2020-21.
The rise in banknotes in circulation, despite the government's push for digital India and various reforms in the banking and fintech industry, has been attributed to "the second wave of COVID-19 pandemic, which induced renewed restrictions on movement in various parts of the country”.
The RBI supplies banknotes in denominations of ₹2, ₹5, ₹10, ₹20, ₹50, ₹100, ₹200, ₹500 and ₹2,000, while coins comprise 50 paise and ₹1, ₹2, ₹5, ₹10 and ₹20 denominations.The share of ₹500 banknotes, both in value and volume, increased during 2021-22 as compared to the previous year. However, the ₹2,000 banknote share continued to dip in both value and volume.In value terms, the share of these banknotes together accounted for 87.1% of the total value of banknotes in circulation as of March 31, 2022, against 85.7% on March 31, 2021.In volume terms, ₹500 notes constituted the highest share at 34.9%, followed by ₹10 denomination at 21.3% of the total currency in circulation as of March 31, 2022.The total value of coins in circulation rose 4.1% to ₹27,970 crore in 2021-22, while its volume grew 1.3% to 12,46,298.As of March 31, 2022, the coins of ₹1, ₹2 and ₹5 together constituted 83.5% of the total volume of coins in circulation, while in value terms, these denominations accounted for 75.8%.The currency issuance (both banknotes and coins) and its management are performed by the RBI through its issue offices, currency chests and small coin depots spread across the country.As of March 31, 2022, the State Bank of India accounted for the highest share of 53.6% in the currency chests network. The indent of banknotes was lower by 1.8% in 2021-22 than that of a year ago. The supply of banknotes was also marginally lower by 0.4% during the said year than the previous year.During 2021-22, the indent and supply of coins saw a huge drop at 73.3% and 73%, respectively, from the previous year.The RBI data shows that the year 2021-22 saw an 88.4% rise in the disposal of soiled banknotes as compared to the previous year at 1,878.01 crore pieces vs 997.02 crore pieces during the previous year.During the fiscal year 2021-22, of the total fake currency notes detected in the banking sector, 6.9% were detected at the RBI and 93.1% by other banks.Compared to the previous year, there was an increase of 16.4 per cent, 16.5 per cent, 11.7 per cent, 101.9 per cent and 54.6 per cent in the counterfeit notes detected in the denominations of ₹10, ₹20, ₹200, ₹500 (new design) and ₹2,000, respectively.Overall, the RBI spent ₹4,984.8 crore on security printing from April 1, 2021, to March 31, 2022, against ₹4,012.1 crore in the previous year (July 1, 2020, to March 31, 2021).
“Higher the weightage of food in overall CPI, the more cumbersome it is for monetary policy to contain inflation,” economists including Deepak Mishra and Ashok Gulati wrote. “The structure of headline inflation in India is quite different from the advanced economies which limits the efficacy of monetary policy in India,” they wrote.
Food and beverages constitute nearly 46% of India’s CPI basket. This is in contrast to many advanced economies where food weights are much lower, such as UK’s 9.3%, US’ 13.2% and Canada’s 15.94%.
The Reserve Bank of India uses retail inflation as a benchmark to set borrowing costs and targets inflation between 2%-6%. Prices have stayed above its mandated range since the beginning of the year, raising a clamor to update the consumer price inflation basket that has not been revised for over a decade.
“This corroborates the urgency to revise CPI with the latest consumption survey weights,” the researchers said. Policy measures need to focus on various supply-side bottlenecks, especially in food items which could be managed by increasing productivity by investing in research and development in agriculture, they said.