Vijay Kumar Gaba

 Sitting on the banks of river Betwa, overlooking the majestic Orchha palace and Lord Raja Ram’s temple, I had a fascinating talk with two farmers from a nearby village. During the course of our discussion, I learnt that they are real brothers; have a family of 11 people, including grandfather, parents and five children aged 3yr to 13yrs including three sons and two daughters; own less than one acre of land and have been tilling another acre on rent; besides they own one cow. They mostly plant wheat during rabi season and vegetables in kharif and intermediate period. Caste wise they were from Kushwaha community that falls in other backward class (OBC) category. Their families are mostly dependent on government schemes for ration, education of children and healthcare. They live in a semi pucca house constructed five years ago with the help of government subsidy.

They have six bank accounts for their family members, mostly used to receive various benefits from the government and other institutions. They have 2-3 small pieces of gold ornaments each for all three women of the house; two bicycles for the men and one basic mobile phone. They collectively have less than twenty five thousand rupees in cash and bank deposits. They hire tractor for tilling their land; and they borrowed money from an MFI to buy a diesel pump for watering their crops.

The most striking part of the discussion was the effort made by these farmers to convince me that they are not “poor” people. They repeatedly alluded that they are amongst the better off families in their community in the village. Obviously their concept of poverty is very different from what is commonly understood by academicians, economists, analysts and policy makers.

Ompal, elder of the brother, mostly defined poverty philosophically. He believes that anyone who does not take what belongs to others and does not beg cannot be termed as poor. Shivpal, the younger brothers, adding a materialistic dimension, said that they have a roof on their heads, their children never go to sleep hungry, and they are able to take care of their elders – how could they be termed poor. Insofar as availing the benefits of the government schemes meant for the poor is concerned; both appeared convinced that being citizens of this country it is their right to enjoy these benefits. "The government does not oblige us by giving 5kg of cereals and basic education to our kids”, Ompal said, rejecting any suggestion of living on government alms.

To give this discussion a context, the policy makers and agencies use a variety of definitions to identify the poor that need to be helped. The Suresh Tendulkar Committee (2009) pegged the poverty level at consumption per person per day at Rs29 in urban areas and Rs22 in rural areas. Rangrajan Committee (2014) revised the limits higher to Rs1407/person month in urban areas and Rs972/person month in rural areas. This criteria is primarily based on the recommended nutritional requirements of 2,400 calories per person per day for rural areas and 2,100 calories for urban areas.

NITI Aayog uses multidimensional definition of poverty which considers health, education, and standard of living. As per NITI Aayog about 25% of the Indian population is poor. The World Bank counts poverty by measuring headcounts living below US$6.85/day in 2017 purchasing power parity (PPP). By this definition it is estimated that ~84% of the population in India lives in poverty.

Even if we ignore the data presented by private agencies like Oxfam, due to the allegations of political bias, there is no doubt that there exists massive inequality in terms of income, wealth, access to good education & healthcare and growth opportunities in India. For example, as per the latest NITI Aayog data, in Bihar 52% of the state’s population is poor; while Tamil Nadu has just 5% of its population below poverty line. MP has 37% of its population living below the poverty line. In fact the most populated four states – Bihar, UP and MP have the largest number of poor living in poverty.

What I concluded from my discussion with the farmer brothers is as follows:

1.    Given the level of poverty, number of poor, and massive inequalities, India should ideally have a strong Communist movement. However, to the contrary, the communist movement has either got constricted to some elite educational institutions or has degenerated into an exploitative and violent Naxal movement in some pockets of central India. Most socialist parties have degenerated into feudal fiefdoms of the leaders.

2.    The political system in India does not conform to any popular classification, i.e., socialist, communist, capitalist, monarchy, autocracy etc. We have a unique political system that incorporates some characteristics of socialism, capitalism, feudalism and monarchy. The elected leaders are considered Kings, and the public treasury is considered their personal wealth. They are thanked for cleaning drains, repairing roads and running schools.

3.    Awareness about good life, constitutional rights and disguised exploitation amongst people is very low.

I shall be travelling extensively through the country for next one year; would be glad to share more such anecdotes and learnings. Readers’ views and opinions are welcome.

 The US Federal Reserve has comforted the global markets with assurance of maintaining strong intent to control prices while not being unnecessarily disruptive in terms of monetary tightening. The markets are apparently reading a 0.9% contraction in the US economy in 2Q2022, as sufficient ground for the Fed to be mindful of the likely disruptive impact of the future hikes; given that the US economy is technically in recession after having contracted for two consecutive quarters in 2022.

The marked slowdown in the economic activities in Europe and China; and easing of the global logistic bottlenecks has noticeably moderated the inflationary expectations, as reflected in the yield curves across the globe. The fears of 1930s type hyperinflation appear to have subsided, at least for now. The equity valuations are gradually adjusting to “above zero” and “neutral” interest rate regimes. The recognition of “positive rates” however is still missing from the popular narrative and hence remains a key risk.

The wider acceptance of the ground realities in respect of the Russia-Ukraine conflict is making it relatively easier to find amicable supply chain solutions. Gradually, the global community is beginning to accept that (i) the conflict may persist for longer than previously anticipated; (ii) stricter economic sanctions on Russia may not yields the desired results and in fact could produce material unintended consequences; and (iii) isolating Russia could provide significant impetus to the ideas of “de-globalization” and “polarization” of the world; raising the specter of multiple and larger geopolitical conflicts, and undermining the global consensus on important issue like climate change, poverty alleviation and denuclearization.

Two factors that can impede the process of returning to normalcy (yet a New Normal), in my view, are –

(1)   Compromise on the climate control targets, further aggravating the already erratic weather conditions across the globe.

The food shortages (and consequent food inflation) could worsen materially leading to reversal of advancements made towards poverty and starvation alleviation in the past three decades in particular. There could be widespread civic unrest; production and supply chain disruptions; and rise in loss of human lives due to hunger, violence and inclement weather.

(2)   Dominance of leftist ideology in global politics hampering creation of new capacities and perpetuating inflation.

As I had mentioned in one of my earlier posts (The Challenges of economic policy), a large number of countries are opting for left of center parties/leaders to govern them. Moreover, to counter the egalitarian agenda of left of center parties, even the right of center parties like conservatives in UK, BJP in India, LDP in Japan and Yemina in Israel are increasingly resorting to socialist agenda to retain power. Obviously, the top priority of governments across the world is immediate relief to the poor rather than growth. It is therefore more likely that the tighter monetary and fiscal conditions will continue to challenge the growth ecosystem in near future. The new capacity building may continue to lag; resulting in more frequent bouts of high inflation, as compared to the past two decades and hence larger volatility in financial stability and macroeconomic environment.

 With each passing day, the realization is growing that it will “years” not months or quarters before the normalcy returns to the global economy. Regardless of the statistics on global trade, national income and corporate earnings, the impact of pandemic on humanity, especially poverty, inequality, and suppression is overwhelmingly devastating. The pandemic has indubitably undone the decades of efforts in poverty alleviation and public health in numerous developing and underdeveloped countries.

As per a recent Bloomberg report based on a study conducted by the World Bank and Philippine’s local agencies, “almost half of shuttered businesses were unsure when they could reopen”. As per the report, “in emerging parts of Southeast Asia, where a wave of job losses and weak social safety nets mean millions are at risk of losing their rung on the social mobility ladder. The region is likely to come in second behind the Indian subcontinent in charting the number of new poor in Asia this year.” This points to a long, drawn-out recovery. Southeast Asia’s GDP is estimated to be to be 2% below the pre-Covid baseline even in 2022.

As per last year’s projections, South Asia was expected to add more than 50million people with $300bn in disposable income to middle class strata. This attracted many global corporations to invest huge amounts in building capacities in this region. With the poverty levels rising and prospects of growth acceleration fading, the viability of these capacities is now questionable.

As per the Bloomberg report, “As many as 347.4 million people in Asia-Pacific could fall below the $5.5 a day poverty line because of the pandemic, according to the United Nations University World Institute for Development Economics Research.  That’s about two-thirds of its worst-case global estimate, and underscores the World Bank’s forecast of the first net increase in worldwide poverty in more than two decades.”

As per HSBC research, The magnitude of the economic free fall in Southeast Asia’s five biggest economies was severe in the second quarter. Indonesia shrank 5.3% year-on-year, Malaysia 17.1%, Philippines 16.5%, Singapore 13.3% and Thailand 12.2%, data compiled by Bloomberg show. Vietnam, which was among the few trade-war winners, will see its three-decade economic ascent grind to a near halt this year. Contractions could persist through early next year.” That’s signalling a prolonged financial squeeze for Southeast Asians.