Gist of EPW March Week 1, 2022

The Economic and Political Weekly (EPW) is an important source of study material for IAS, especially for the current affairs segment. In this section, we give you the gist of the EPW magazine every week. The important topics covered in the weekly are analyzed and explained in a simple language, all from a UPSC perspective.
TABLE OF CONTENTS

1. Is the Economy Heading towards Stagflation?
2. Durable Growth Revival
3. Policy Landscape for Diet Diversity in India

1. Is the Economy Heading towards Stagflation?

Context

The gross domestic product (GDP) growth numbers released by the National Statistical Office (NSO).

Details

• The revised GDP growth numbers for 2021-22 show a reduction of 0.3% points lower to 8.9%.
• The third-quarter growth numbers further reduced to 5.4%, nearly 3% points less than that of the second quarter.
• It also shows a further reduction in the growth numbers for the fourth quarter of the year.
• The only positive from the released numbers is that the second advance estimates show that consumer spending has slightly increased above the pre-pandemic levels.

Read more on the gross domestic product (GDP) in the linked article.

Analysis of the numbers

• The GDP trends in the third quarter show that the base period effects have slowed growth in all sectors.
• The most affected ones have been the construction and manufacturing sectors.
  • The output in the construction sector has reduced and the increase in the manufacturing sector is less than 1%.
  • The performance of these sectors is not satisfactory despite more capital spending, high festival season demand and the sharp rise in merchandise exports which were supposed to boost the growth.
• The decline in the growth rate along with a persistent increase in consumer prices pushed the consumer price index (CPI) to a seven-month high of 6% in January (2022).
• However, despite the increase, the central bank feels that there is no need to change its monetary stance.
  • They predict that the consumer prices have reached the peak and expect that the inflation rates will reduce to 4% by 2023.
  • They say that the price levels are high due to a low statistical base and that the month-to-month trends in inflation rates have largely remained negative in recent times.

Key concerns

• Experts feel that the stand of central bank authorities is flawed.
• The recent rise in the inflation numbers is triggered by the increase in the consumer food price index which has soared up nearly 5% particularly because of a rapid increase in cereal prices.
  • The main cause of concern is that even the prices of non-food items remain much higher than the headline inflation.
• The core inflation (inflation excluding the volatile food and energy prices) is continuously around 6%.
  • The higher core inflation indicates that the current increase in the prices is not due to any short-term volatility but that it is a permanent trend.
• The prices of household goods and services, healthcare, and recrea­tion are at around 7% and that of clothing-footwear and fuel-light are higher than 9%.
• The surge in domestic petrol and diesel prices in March (2022) has also put pressure on headline inflation.
  • The price of India’s oil import basket has shot up from $80.64/barrel in November (2021) to $84.67/barrel in January (2022).
  • Recently, the war in Ukraine has further blown up global oil prices above $100/barrel.
  • The supply disruptions due to the war will also impact energy at least in the short term.

Risk of stagflation

• The continued slowdown in growth and the persistent increase in inflation poses the risk of stagflation.
• Stagflation is a situation where unemployment is very high, the economic growth rate is too low, and the inflation rate is high.
  • Stagflation should be avoided as it is unhealthy for the economy of the nation.
  • Stagflation occurs when there is an increase in money supply and harsh regulations.
• The monetary policy committee (MPC) of RBI has kept the policy rates unchanged for the 10th consecutive time in the belief that the current surge in consumer prices is mainly because of the rising food prices.
• However, with the GDP growth slowing more rapidly than expected and inflation threatening to raise the government-mandated price band, the macroeconomic scenario has changed considerably.
• The strict monetary policy by the RBI even as other central banks raised rates across the globe now needs a change as even the government refused to use fiscal policy to do the heavy lifting and revive the growth prospects.
• The rapidly increasing inflation and the reduction in growth prospects will further lead to stagflation.

2. Durable Growth Revival

Context

The recent estimation of growth numbers in India.

India’s growth rate projections

• In 2020-21, after the COVID associated lockdown and restrictions imposed the GDP had contr­acted by 7.3%. 
• India’s gross domestic product (GDP) is estimated to grow at 9.2% in 2021-22, as per the first advance esti­mates released by the National Statistical Office (NSO).
• The NSO’s projections are lower than the Reserve Bank of India’s (RBI) GDP projection which estimated that the economy would grow at 9.5%.
• The RBI’s projections of the growth rate for the third quarter (October-December 2021) and fourth quarter (January–March 2022) were 6.6% and 6%, respectively. 
• The projections were based on the assumption that there would be no further spread of COVID infections but the third wave in the onset of 2022 triggered by the Omicron variant of the virus will have its effects on the projections and the actual growth rate would be much lower.

Growth rate of various sectors

Inference from the growth numbers

• An increase in the nominal GDP at 17.6% gives scope for additional expenditure for the government. 
• It also shows that despite the reduction in disinvestment proceeds, the fiscal deficit target of 6.8% of GDP would be achieved in FY 2022 and would result in a significant reduction in the debt to the GDP ratio.
• The expansion of the economy, also suggests that the estimated GDP growth rate of 9.2% for FY 2022 is the highest in the last 17 years.
• The GDP in nominal terms, which includes inflation as a factor, is estimated at 17.6% for 2021-22 compared to a contraction of 3% in 2020-21. 
  • This difference indicates the prevailing higher prices in the economy. 
• The data also shows that the GDP would get back to the pre-Covid-19 levels of 2019–20, due to persistent growth in agriculture production and a revival of mining and manufacturing sector outputs
• It is predicted that the capital formation will also increase from 27.1% to 29.6%. The investment activities are predicted to rise. 
• The slow-paced growth of private investment is a cause of concern with the states curbing their capital expenditure.
• The impact of the COVID-19 pandemic is still seen in the private ­final consumption expenditure. The main reason for the decline in private consumption is due to the changes in income distribution.

Important indicators to assess growth projections

• Employment Generation
  • The Employment Rate is the ratio of the employed to the total working-age population.
  • ­India’s performance in this regard is very low compared to other countries.
  • According to the World Bank, the global rate was 55% in 2020 and India recorded a mere 43%. Only a few Middle East and North African countries have a lower employment rate than India.
  • In Bangladesh it is 53%, in China it is 63% and in Pakistan, it is 48%.
  • As per the Centre for Monitoring Indian Economy (CMIE) data, with an unemployment rate of 7.9%, nearly 3.5 crore people were unemployed in December 2021 out of which 23% were women.
• State of distribution
  • The outcome of low GDP growth and slow-paced employment growth is reflected in the levels of inequality.
  • The data from World Inequality Report 2022 suggests that India stands as a “poor and very unequal country, with an affluent elite,” where the top 10% holds 57% of the total natio­nal income, while the bottom 50% share is just 13% in 2021.
  • The average annual national income of the adult population is 2,04,200 in 2021, the ­bottom 50% earned 53,610, and the top 10% earned more than 20 times that of the bottom 50%.
  • The recent multidimensional poverty index (MPI) by Niti Aayog also shows that one in every four people in India are multidimensionally poor with Bihar having the highest percentage of multidimensionally poor people, foll­owed by Jharkhand and Uttar Pradesh.

Impact of the growth projections

• The recent growth recovery across different sectors of the economy and different segments of the population is uneven.
• This unevenness is impacting the consumption of lower-income households and thus restricting a sustained increase in private investments, which are crucial for growth. 
• The revival of the economy post the pandemic has been on the slower side and further recovery has been hindered by supply-side bott­lenecks. 
• Higher inflation and wider current account deficit have forced the RBI to adopt a policy stance that further prevents durable growth. 
• A more durable growth recovery could be achieved by a vibrant manufacturing sector assisted by infrastructure development. 
• Persistent increase in capital formation, both from public and private firms is the key in this endeavour. 

Conclusion

For global investors, India still is an attractive investment destination, low-scale investment by the private sector can be corrected if the government can demonstrate its ability to provide stable and supportive policies, by focusing on economically feasible projects.

3. Policy Landscape for Diet Diversity in India

Context

This article helps us understand the diversity in the diet through the spectrum of the policy landscape in India.

Diet Diversity

• Diversity in diets is concerned with having more than three food groups that provide sufficient nutrients ensuring a healthy diet. 
• Diversity in diets includ­es ample amounts of carbohyd­rates, proteins, vitamins, and minerals through diets that include cereals, pulses, nuts, oil, meat, fish, eggs, fruits, and vegetables. 
• Diversity in diets improves nutritional outcomes.
• Diet diversity is said to be impacted by four main factors namely: 
  • Availability
  • Affordability
  • Awareness
  • Utilisation
  • Policy framework

Diversity in diets in India

• As per the National Family Health Survey-4 (NFHS-4) (2015-16) data, only about 9.6% of children have access to an acceptable diet.
• According to the Comprehensive National Nutrition Survey (CNNS) (2016-2018), only 6.4% of children aged under two years received a minimum acceptable diet.
• The minimum acceptable diet takes into account the minimum feeding frequency as well as the minimum dietary diversity.
• The Indian Council of Medical Research (ICMR) has advised that a plate of meal should ideally consist of at least,
  • 45% of cereals
  • 17% of pulses, or eggs, or flesh foods
  • 12% of fats and oils 
  • 10% of milk or curd 
  • 8% of nuts and seeds
  • 8% of fruits and vegetables
• ICMR’s “What India Eats” report highlights regi­onal discrepancies in consumption habits.
  • The report shows that urban areas had better dietary diversity compared to rural areas.
• The Centre for Indigenous Peoples’ Nutrition and Environment (CINE) thr­ough its studies on the indigenous population has reported a transition in dietary consumption of the people.

Transition in dietary consumption

• The Green Revolution in India was introduced to counter the scarcity of staple foods like wheat and rice which had led to hunger and starvation.
• It introduced high-yield varieties of rice and wheat which resulted in the loss of indigenous varieties of rice and millets.
• The minimum support price (MSP) which has been extended to 23 crops, covers nearly 80% of the total agricultural production, this has discouraged the cultivators from growing traditional crops and has made them shift to MSP-secured crops.
• Some states made various changes to their midday meal (MDM) scheme for children, which mostly included rice and dal, and in a few states, eggs were provided as a source of protein and vitamins. 

Impact of the transition in dietary consumption

• The transition has led to an increased burden of malnut­rition with rising micronutrient deficiency.
• Reports highlighted that low consumption of fruits and vegetables, increased the risk of diabetes and a lower intake of milk increased the risk of hypertension.
• The reports also identified that the availability of inexpensive cereal has ensured that cereals are being consu­med the highest across the country which has hampered the diet diversity by replacing local foods. Although cereals are inexpensive and the best source of energy, they lack micronutrients such as vitamins and minerals.
• The rise in the production of rice and wheat has affected the production of crops like pulses, millets, and oilseeds.
• Monoculture has impacted the envi­ronment along with diversities in the diet.
• Since there is no MSP support for a wide range of fruits and vegetables, crops such as paddy and wheat are extensively cultivated.
• The pandemic disrupted the implementation of the MDM scheme which resulted in:
  • Children being fed non-traditional diets that drive them away from consuming and growing traditional crops.
  • They are also being fed less balanced and nutritious diets which are mainly rich in carbohydrates.
• A study also shows that the subsidies on imported palm oil altered its consumption, and led to a negative impact on health and nutrition.
• An analysis of the wholesale price index (WPI) of four major food groups that include foodgrains; fruits and vegetables; milk and animal products has indicated a persistent increase in the cost of milk and other animal products which is a major reason for food infl­ation.
  • This questions the affordability of a healthy diet for marginalised communities.

Also read: POSHAN Abhiyan

Recommendations

• There is an immediate need to shift food systems and policies for a healthier and nutrient-adequate diet. 
• The Task Force on Balanced and Healthy Diets constituted by the Ministry of Health and Family Welfare has recommended strengthening the “farm-to-fork” approach to improve affordability, avail­ability, accessibility, and food security.
• Diversification of crops at the production level will bring about diversification in consumption habits.
• The Kerala model should be implemented in other states by extending the MSP for a wide range of fruits and vegetables.
• The POSHAN Vatika or “Nutrition Garden” can be used to decentralise nut­rition where the local communities have the option of growing and consuming food crops of their choice. 
  • This way, we can preserve traditional food practices and indigenous varieties of food which are crucial for certain tribal communities. 
• Awareness programmes need to be undertaken with the help of SHGs, local community leaders, ASHA workers, etc.

Read previous EPW articles in the link.

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