The poverty debate in recent times has got muddled as the absence of official estimates and the rejection of the Consumer Expenditure Survey (CES, 2017-18) have engendered sharply divergent research conclusions.

Studies by Arvind Panagariya & Vishal More (Feb 2023) and Surjit Bhalla et al (2022, IMF) claimed that not only poverty has been on the declining trend, but extreme poverty has been eradicated. Others like Dreze, Himanshu, and Mehrotra have shown a worsening of poverty.

One way to assess this is to probe how the economic transformation has panned out.

Developing societies usually shift towards the modern from the subsistence sector resulting in a virtuous cycle of rapid growth, urbanisation, rise in investments, productive employment and income, and poverty reduction. The concern is transformation may have reversed in India over the past decade.

Chronic lack of investments: India has experienced the longest phase of private capex drag in the post-independence era since 2011 despite multiple attempts to crowd them in through government investments and a surfeit of supply-side and the post-pandemic bounties.

The share of public capital formation has risen to 9.5 per cent of GDP in FY22 from 6.5 per cent in FY19 whereas the share of private fixed capital formation has continued to decline (Economic Survey 2022-23); estimated at 8.4 per cent in FY22E vs 10.8 per cent in FY19. The crowding-in effect of government capex on private was relevant during the 1980s. But lately, it has failed to generate a significant multiplier effect.

The plummeting of industrial bank credit growth in Mar’23 to 5.7 per cent YoY, including 3 per cent for large industries tells that revival of investment remains elusive.

Corporates have preferred to conserve their profitability, investing in smart technology amid rising uncertainty attributable to multiple domestic and global shocks.

Persistence of unemployment problem: The persistent lack of investments has hit job creation and incomes. RBI’s survey of urban households (4QFY23) indicates that both employment and income situations have improved since the Covid lows, but they remain weaker than pre-pandemic and 10 years back resulting in a worsening of per capita income, amid the rising cost of living.

Rising ruralisation: The rising market share of large corporates and sluggish private capex have resulted in a rise in urban unemployment forcing a structural shift towards “ruralisation”.

India’s workforce dependence on agriculture has risen from 42.5 per cent (2018-19) to 45.5 per cent in 2021-22 (PLFS). And, the real agriculture GVA has grown at 3.8 per cent on a 3-year CAGR basis (FY23), higher than the 3.2 per cent real GDP growth.

As per CMIE data, at the post-pandemic peak, the agriculture sector absorbed 10 million net additional workforce since the Covid shock, while the industrial sector and services have retrenched 5.6 million and 2.5 million respectively. Arguably, this changed composition of the workforce and the rise in surplus labour have resulted in low real wages.

Demand for cereals rising again: A structural progression path should be characterised by increased diversification away from calorie intensive food items. India’s monthly per capita consumption of cereals contracted by 1.7 per cent annually from 12.9 kg in 1993-94 to 10.4 kg in 2011-12 (NSSO). But that trend has reversed as reflected in the GDP expenditure series on cereals and bread which shows a rising structural trend (3.3 per cent p.a) translating into 2.2 per cent per capita real spending on cereals in FY21, up from -0.8 per cent during the late 2010s. Thus, the decline in calorie intake till mid-2010 may have also reversed.

Industrial sector converged with agriculture: Industrial production growth (IIP) since 2012 has decelerated to 2.1 per cent on a 10-year CAGR, sharply lower than a decade back, and is somewhat lower than foodgrain production at 2.3 per cent on a 10-year CAGR. This represents the convergence of the modern sector represented by industrial production with the subsistence sector, represented by foodgrain production.

The net effect of this shift reflects in multiple indicators: (a) sales of two-wheeler and passenger vehicle sales volumes are now 30 per cent and 32 per cent lower than the 2018 peak respectively, (b) growth in tractors has scaled down but is better than two-wheelers and passenger vehicles, (c) decline in sales of heavy commercial vehicles, reflecting the state of capital formation, and (d) volume growth for HUL has halved to 3.5 per cent from a decade ago.

Fading transformation amid deglobalisation:

Industrial production (IP) growth in the US has improved from -0.3 per cent during 2000-2012 to +1.1 per cent during 2012-2022. Correspondingly, in the EU it rose from 0.2 per cent to 1.1 per cent. Contrastingly, India’s industrial growth fell to a 10-year average of 2.1 per cent, compared to 7.7 per cent during 2000-12.

Thus, indexed to 1991, India’s IIP relative to the EU and the US rose to 290 and 240 by 2012 respectively. But subsequently, as the growth differential narrowed the incremental rise had been modest. Unsurprisingly, India faces a multidecade high unemployment rate while the US is at a 57-year low.

India needs to shun complacency: In their 2013 research Panagariya and More were on firmer grounds; “…no matter what criterion we choose poverty declined sharply between 1993-94 and 2011-12 with a significant acceleration during the faster-growth period of 2004-05 to 2011-12”.

Contrastingly, their latest claims (2023) attribute the poverty decline to free-food distribution, stepped-up MNREGA allocation, and a strong agriculture sector. Their current arguments overlook the declining structural progression.

As for the present, while the 4QFY23 real GDP growth at 6.1 per cent is a positive surprise, it continues to depict a frail household situation and elusive private capex. Also, given the sharp decline in bank lending to industries, the rise in fixed capital formation/GDP has come from abnormal clustering of government outlay in 4QFY23.

The writer is Co Head of Equities & Head of Research, Systematix Group