Posts tagged Economic Development

Service sector – driver of India’s growth

Service sector – driver of India’s growth

(Friends, these are the basic points. Please don’t worry too much if you don’t remember the statistics. Read the entire article and understand how service sector has contributed to the economy.)

  1. The share of manufacturing in India’s GDP has remained stagnant around 16 per cent for nearly three decades.
  2. India’s growth story has been driven by services, which has a 55 per cent share in the economy.
  3. Services exports have outperformed goods exports in the recent years, due to which India’s share in the world’s commercial services exports has risen steadily over the past decade to reach 3.5 per cent in 2018 — twice the sector’s share in the world’s merchandise exports,1.7 per cent.
  4. The Centre rolled out a whopping Rs 20.9 lakh crore stimulus package to pull the economy out from the ravages of the pandemic. The package had a strong focus on the MSME sector, employee provident fund, power distribution companies and taxation, among other affected areas. Most of the stimulus package is in the form of funding and loan opportunities and, injecting liquidity to the market.
  5. The sector’s significance in the economy continues to grow with its share amounting to two-thirds of total FDI inflows into India and about 38 per cent of total exports.



Nutrition is India’s next big headache

(Friends, I’ll show how to make notes from this article a bit later)

Nutrition is India’s next big headache

25 Aug 2020

Amir Ullah Khan, Saleema Razvi

Covid could leave behind a silent food crisis that will put the demographic dividend at risk. What can be done?
Food insecurity must be closely monitored in the months ahead. Data sets generated by the national sample survey should include questions on people’s food and nutritional distress

Several months into the pandemic, the long-term effects of covid-19 are only just beginning to surface. In at least a small subset of patients, symptoms persist for months, resulting in fatigue and even permanent damage to the lungs, heart or the brain. The long shadow of the pandemic may thus stay with us for many years to come.
But it is in the realm of nutritional deficits—amplified substantially by the economic fallouts—where this shadow may be the most pronounced and have the most far-reaching effects. Hunger and malnourishment is tragic in any case, but in the long run, they also strike at the root of the demographic dividend that India has been banking on.

Even if the eventual covid death toll is low, the disease could still play havoc with India’s prospects if it triggers a rise in the share of the population that grows up without adequate nutrition, resulting in an inevitable spike in wasting and stunting. That eventuality would also damage the handsome gains that the country has made in the recent past fighting widespread malnutrition among children and women.

The roughly 12 million new entrants into the workforce every year and the 26 million new babies need quality education and, more importantly, adequate food and nutrition to be productive and independent. Neglecting these two requirements will turn the dividend into a disaster.

In the aftermath of the pandemic, Oxfam estimates that an additional 100 million Indians are vulnerable to food distress. Those particularly hard hit are women and women-headed households. Many of them will go hungry soon, if not already. The neo-poor, those who had earlier earned decent wages as taxi drivers and hotel workers, are now unable to buy wholesome food.

Surveys and estimates indicate that 30% of urban India has run out of all savings, which means that their food distress will only grow substantially in the months ahead. Rural India, covered by the PM-Kisan and MGNREGA, has fared relatively better. But with the relentless growth in infections, and the acceleration in the number of job losses, the food crisis striking the country is eerie and silent.

In the patriarchal family structure that India has, children (and the girl child in particular) and women will bear the brunt of this calamity. At least 21 million women underwent pregnancy under the shadow of covid. The ripple effects could emerge in various horrifying ways in the future and needs to be addressed right away. The country’s stimulus package promised large amounts of money as loans that will take time to reach the poor, but hunger is an immediate problem as former Reserve Bank of India governor Raghuram Rajan also pointed out recently.

The current reality

Why did malnutrition and malnourishment go up even as the economy started growing at a steady pace after 1991 and at a fast clip after 2004? If per capita incomes were growing all around, and consumption levels were increasing dramatically, why would the average Indian not spend on food and nutrition? The paradox is even more baffling in urban areas. High malnutrition rates are common even in urban India, with nearly 25% stunted.

India’s children consume large amounts of carbohydrates, very little protein and almost no fruits or vegetables. The uninformed nutrition debate remains a shouting match between animal versus plant-based food advocates, and what we end up with is a situation where less than 15% of children get eggs to eat and only the rich get to consume dairy products.

It is rare for parents to understand that a balanced diet for a child is at least as important as the quantity and quality of food consumed. The dietary quality of the India population is marked by a declining demand for fruits, vegetables and animal proteins, which are the main source of essential micronutrients in the diet. Disruptions in supply chains during covid also mean limited access to perishable foods particularly. This shortage in supply would automatically lead to households shifting to nutrient-poor diets.

Efforts made through public food distribution programs typically deliver non-perishable staples, oils, and pulses, which could only increase the inclination toward poor-quality diets. The International Food Policy Research Institute’s studies show that nutrient-rich non-staple foods are up to ten times more expensive than staple foods in most poor countries. With reduced incomes, households very quickly move to buying the cheapest calories to eat—the aim being to maintain quantity and not quality. As a result, anaemia, stunting, wasting and other nutritional deficiencies are bound to increase.

And in a country like India, which is already home to the world’s largest population of malnourished children, this effect is going to be even more pronounced. In the 2019 Global Hunger Index, India ranks 102 out of 117 qualifying countries. Even Bangladesh at 88 and Pakistan at 94 perform better than India.

How did India get left behind in this race? Why does India have the highest number of undernourished people in the world (almost 24% of the total)? A comparison among countries in the emerging world shows that China which was at the top at the turn of the century rapidly reduced the numbers of undernourished, while India’s numbers have simply plateaued (see Chart 1). One of the most worrying fallouts of 2020 may be the reversal of even this modest progress in maternal and child health.

The disruption of the cooked meal programme, in particular, could worsen the already existing under-nutrition in children. With schools closing, access to the mid-day meal scheme—a free nutritious meal for approximately 100 million children between the ages of 6-14 years—was also halted.

The Centre had earlier advised states to distribute dry rations to the beneficiaries of the Integrated Child Development Services (ICDS), but national and local lockdowns have led to the closure of many manufacturing units which make the raw materials for the mid-day meal scheme.

Roots of a slide back

Ever since the nutrition crisis was highlighted by the HUNGaMA report and termed a national shame in 2012 by the then Prime Minister Manmohan Singh, India has seen significant improvements in the indicators. Over the last fifteen years, after the District Level Health Survey in 2004 showed that 53% of children in India’s worst-affected 100 districts were underweight, there has been a steady decline in these numbers.

The mid-day meal scheme, the national health mission, MGNREGA, the rise of women’s self-help groups and a decisive movement by the government toward setting up the POSHAN Abhiyan have all resulted in tangible improvements. Nutrition had finally gotten its due, with rigorous efforts from the government to reduce child mortality and improve nutritional interventions.

The wins have been fairly substantial. In the north-eastern states, where two-thirds of infant deaths occur, persistent communication and outreach have resulted in a significant increase in early initiation of breastfeeding. The percentage of stunted children under 5 came down from 48% in 2005-06 to 38.4% in 2015-16 (see Chart 2).

However, at the same time, there has been a rise in the national share of children who display symptoms of wasting—from 19.8% to 21%. A high increase in the incidence of wasting was noted in Punjab, Goa, Maharashtra, Karnataka, and Sikkim. Wasting refers to a process by which a debilitating disease causes muscle and fat tissue to “waste” away. Apart from India, only three countries in the world have wasting above 20%—Djibouti, Sri Lanka, and South Sudan.

Ways forward

Give this mixed progress report and the threat of a pandemic-induced slide back, there are at least some steps that India can take to protect and preserve its demographic dividend.

Firstly, we need to monitor food insecurity closely in the months ahead. Large datasets generated by the national sample survey (NSS) should include detailed questions on people’s food and nutritional distress. We should also carefully record antenatal visits, anganwadi worker outreach and the impact on women’s health. In a situation where we cannot supply mid-day meals, the anganwadi centers should ramp up the provision of dry food ration, and maybe even double or triple the quantity. Cash transfers have been known to have a positive impact on nutritional outcomes and that is what India has not used effectively until now in its pandemic support policy for the poor.

Secondly, the Integrated Disease Surveillance Program (IDSP) is our central disease monitoring network. Curiously, the IDSP’s weekly updates have disappeared after the twelfth week of 2020. The IDSP must continue to publish weekly updates to help keep a check on future disease outbreaks.

Thirdly, on the agriculture front, our godowns are stocked and overflowing with 77 million tonnes of food grains. If not now, when are we going to use this reserve?

Fourthly, immunisation, public health screening, family planning and other such programmes should be resumed fully with physical distancing and other safety protocols in place. The prevention of wasting in children can also be easily integrated into the mandate of the existing health infrastructure, especially in cities.

Finally, given the importance being given to the new National Education Policy (NEP), it is important to underline the fact that it fails to acknowledge the importance of school education in the healthy development of a child. We have 159 million children below 6 years of age and they are so much more vulnerable today that they were last year, with the prospect of high nutritional and learning deficits. We often ignore the strong correlation between educational outcomes and the level of nourishment.

Undernourished children have learning difficulties, are inattentive in class and, in today’s context, have lower immunity levels making them vulnerable to infections. The ICDS should have been underlined in the NEP and financed sufficiently to provide balanced diets, supplements and physical exercise for India’s children.

The economics behind the impact of undernutrition and malnutrition on the demographic dividend needs to be reiterated. Substantial economic returns from investing in interventions to improve the nutritional status are proof that poor nutrition is bound to cause economic losses, especially in India which is a young country. Under-nourished children score poorly on tests of attention, fluency and memory, which is important to consider given the strong linkages between cognitive skills and earnings and income in adulthood. A malnourished workforce, which is unable to work with full efficiency, will keep India’s productivity low and will severely hurt our long-term economic competitiveness.

Amir Ullah Khan is professor of development economics at the MCRHRDI and Saleema Razvi is a senior research economist at the Copenhagen Consensus Center.

A policy window to set India up for a good economic recovery

A policy window to set India up for a good economic recovery

23 Apr 2020
Manish Sabharwal

(Friends, I’ll discuss how to take notes from this article a bit later.)

India’s formal jobs challenge has been a pre-existing condition since 1947 because of overdue but unavoidable reforms in labour, education, cities, finance, compliance and civil services. But the coronavirus opens what John Kingdon calls a policy window—the convergence of problem streams, reforms, and timing. Our problems are clear: not enough high-productivity enterprises and poorly skilled labour. The economic pain from the lockdown makes what was always important, urgent. Some overdue reforms are in progress, but a treatment 90% complete is still incomplete. Many reforms are structural, and they need time and resources for capacity building, organizational revamps and a reboot of human capital, but some are flick-of-the-pen law changes. Recognizing that the best time to ask intensive-care patients to quit smoking or lose weight is just after they leave the intensive care unit, I make the case for a 90-day monsoon of “flick-of-the-pen” reforms in jobs and education:

A single labour code: India’s capital is handicapped without labour, and labour is handicapped without capital for many reasons. But labour laws fuel our growth’s lower employment elasticity and blunt our ability to attract China factory refugees trying to escape its trade war, high wages and virus handling. Most painfully, our labour laws bully our young because job preservation is not a form of job creation, and bully our most vulnerable by breeding informal employment. The crisis shows that formal employers have higher resilience. We must immediately notify a rationalized, simplified and digitized single labour code.

Social security: India’s wages have three wedges, namely real versus nominal, government versus private, and gross versus net. All three matter, but the easiest to address is the 40%+ salary deduction that low-wage employees suffer. Our mandatory payroll deductions ignore savings rates and breed informality (where “haath waali” salary in hand equals the “chitthi waali” on paper). We must make the employee’s provident fund (PF) contribution voluntary and incentivize formal employment by restarting the Pradhan Mantri Rozgar Protsahan Yojana that successfully subsidized employer PF contributions for new low-wage employees.

Health insurance: India’s new order that makes health insurance mandatory is baffling; isn’t that employee’s state insurance (ESI)? Maybe it recognizes that ESI provides goofy service at a high cost. We must reduce ESI contributions for all employees and employers to ₹1 per month for 2 years. This can be easily funded by the over ₹60,000 in liquid deposits held by the ESI corporation that reflect two decades of its overcharging employers.

Online education: India’s current online university regulations create apartheid by only allowing seven of our 993 universities to launch online courses. During the virus lockdown, overseas universities have signed up over 100,000 students in India for online courses. This exposes the folly and unfairness of the University Grants Commission’s 2018 online regulations. We must immediately allow all accredited universities to launch online courses with full flexibility in design, delivery and assessment. If we don’t act quickly, our online university education will become like Wimbledon (it is played in England, but no Briton wins).

Apprenticeships: These, linked with degrees, are the future of education because of learning-by-doing and learning-while-earning. But India only has 0.01% of our labour force in apprenticeships (Germany has 2.7%) and only 30,000 employers offering such programmes (the UK has 200,000). Our licence raj over apprentices scares employers, bans universities from offering degree-linked apprenticeship programmes, and often tells employers to seek 28 separate state approvals. Tweaks to India’s Apprenticeship Act that grant national approvals and allow universities enrolment freedom would re-imagine Mahatma Gandhi’s 1937 Nai Taleem vision of experiential learning for the 21st century.

Compliance cholesterol reduction: Employers in India must bear with about 57,000 compliances (of which over 10,000 have jail provisions) and 3,100 filings (only 10% of which offer quick digital processing). An ease-of-doing business commission that rationalizes, simplifies, and digitizes all this could improve compliance, reduce corruption, and lower harassment of small businesses in 90 days. It should also pick one of the 25+ numbers issued by various government agencies as an Aadhaar-type universal enterprise number.

Tax refunds: The idea of employers or employees providing the government with working capital is questionable at all times, but is particularly painful when a lockdown forces customers out. Shareholders don’t pay salaries, customers do. And while this solvency crisis arises more from an asymmetric impact on revenues and cost, all liquidity helps. We must release all pending tax refunds up to fiscal 2019-20.

Questions raised about the lockdown’s trade-off between lives and livelihoods have been met with many lectures about economics being a moral science. Maybe it’s time to re-examine this science envy; physics accepts resource constraints, lives with laws, and expects consequences (every action has a reaction). The Indian economy’s virus challenges are amplified because it is inadequately industrialized, formalized, urbanized, financialized and skilled. We must address these issues, but a 90-day monsoon of flick-of-the-pen reforms would recognize that without employers there are no employees.