• The absence of official estimates and divergent research conclusions have muddled the poverty debate, raising concerns about the reversal of India''s transformation over the past decade.
• Studies claimed that not only poverty has been on the declining trend, but extreme poverty has been eradicated.
• 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.

Lack of Investments in India

• 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 post-pandemic bounties.
• Share of capital formation: The share of public capital formation has increased to 9.5 % of GDP in FY22 from 6.5 % in FY19.
• Whereas the share of private fixed capital formation has continued to decline to 8.4 % in FY22E from 10.8 % in FY19.
• The Government capex’s crowding-in effect on private was relevant during the 1980s.
• Lately, the crowding-in effect has failed to generate a significant multiplier effect.
• Industrial Bank Credit Growth: The plummeting of industrial bank credit growth in March 2023 to 5.7 % Year on Year (YoY), including 3 % for large industries tells that revival of investment remains elusive.
• Corporates conserved their profitability, investing in smart technology amid rising uncertainty attributable to multiple domestic and global shocks.

Unemployment Problem and Rising Ruralisation

Unemployment Problem

• The lack of investments has hit employment generation and income.
•  RBI’s survey of urban households (4QFY23) indicates that both employment and income situations have improved since the Covid lows.
• However, they remain weaker than pre-pandemic and 10 years which resulted in a worsening of per capita income, amid the rising cost of living.

Rising Ruralisation

• Reason: Both 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”.
• Agricultural Workforce: Indian workforce dependence on agriculture has increased from 42.5 % (2018-19) to 45.5 % in 2021-22 (PLFS).
• Real Agriculture GVA (Gross value added): It has grown at 3.8 % on a 3-year CAGR basis (FY23), higher than the 3.2 % real GDP growth.
• Increasing Agricultural Workforce: The agriculture sector absorbed 10 million net additional workforces since the Covid shock, whereas the industrial sector and services have retrenched 5.6 million and 2.5 million respectively.
• This has changed the composition of the workforce and the rise in surplus labour has resulted in low real wages.

Demand for Cereals Rising Again

• A structural progression path should be characterized by increased diversification away from calorie-intensive food items.
• Consumption of cereals: India’s monthly per capita consumption of cereals decreased by 1.7 % annually from 12.9 kg (1993-94) to 10.4 kg (2011-12 (NSSO)).
• However, this trend has reversed, showing a rising structural trend (3.3% p.a) and a 2.2% per capita real spending on cereals in FY21, up from -0.8% in the late 2010s.
• This suggests the decline in calorie intake till mid-2010 may have also reversed.

Industrial sector converged with agriculture:

• Since 2012, the Industrial production growth (IIP) has decelerated to 2.1 % on a 10-year CAGR, lower than a decade back.
• It is also lower than foodgrain production at 2.3 % on a 10-year CAGR.
• This indicates a convergence between the modern sector (industrial production) and the subsistence sector (foodgrain production).

Impact on Multiple Indicators of this shift

• Sales of two-wheeler and passenger vehicle sales volumes are now 30 % and 32 % lower than the 2018 peak respectively,
• Growth in tractors has gone down but is better than two-wheelers and passenger vehicles,
• Decline in sales of heavy commercial vehicles, reflecting the state of capital formation, and
• Volume growth for HUL has halved to 3.5 % from a decade ago.

Fading Transformation Amid De-globalisation

Comparing India, the US and the EU

• Industrial production (IP) growth in the United States has improved from -0.3 % during 2000-2012 to +1.1 % during 2012-2022.
• In the European Union it increased from 0.2 % to 1.1 %.
• India’s industrial growth fell to a 10-year average of 2.1 %, compared to 7.7 % during 2000-12.
• Thus, indexed to 1991, India’s IIP relative to the EU and the US increased to 290 and 240 by 2012 respectively.
• As the growth differential narrowed the incremental rise had been modest.
• India is facing a multidecade high unemployment rate compare to the US which is at a 57-year low.

India needs to shun complacency:

• No matter what criterion India 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.
• However, current claims attribute the poverty decline to factors like free-food distribution, increased MNREGA allocation, and a strong agriculture sector, overlooking the declining structural progression.

Household situation and elusive private capex:

• The 4QFY23 real GDP growth at 6.1 % is a positive surprise, it continues to depict a frail household situation and elusive private capex.
• Decline in bank lending to industries, and the rise in fixed capital formation/GDP has come from abnormal clustering of government outlay in 4QFY23.

India''s lack of investments, prolonged private capex drags, rising ruralization, and increasing demand for cereals indicate the need to shun complacency and address the frail household situation and elusive private capex.