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G.S paper III: INDIAN ECONOMY
There is no ebb in India’s economic woes. In its latest assessment, International Monetary Fund (IMF) has cut India’s economic growth forecast to 4.8 per cent.
In its World Economic Outlook, IMF did the same for global economic growth — to 2.9 per cent for 2019, a downward revision of 0.1 percentage point from its earlier forecast.
“The slight downward revision of 0.1 per cent for 2019 is owed largely to downward revisions for India,” the IMF said on January 20, 2020.
On the other hand, the IMF estimate attributed dipping rural income in India as the main reason for the country’s economic growth floundering.
What it means
India’s rural income, by its sheer size, has impacted overall global economic growth.
Rural income comprise close to 46 per cent of the total income of the country with the world’s second-largest population.
A recent National Statistical Organisations survey on consumption expenditure showed a 10 per cent drop in rural expenditure in the country. The survey though was buried by the government.
“The biggest contributor to the revision is India, where growth slowed sharply owing to stress in the non-bank financial sector and weak rural income growth,” said Gita Gopinath, the chief economist of the IMF.
Earlier, Ramesh Iyer, managing director of Mahindra Finance, in an opinion piece on the IMF website wrote that emerging economies’ growth would mostly come from consumption in rural areas.
Accoridng to Iyer’s piece: “Consumption per capital in rural areas is slated to grow by 4.3 times in just 10 years”.
Skewed distribution
However, Oxfam International, a non-profit in its annual wealth distribution report has said that India’s bottom 50 per cent population recorded a wealth growth of just 3 per cent in comparison to the last financial year.
This segment largely includes India’s rural poor. India’s top 1 per cent population income-wise registered a wealth growth of 46 per cent, according to Oxfam International.
Besides dipping income from agriculture that employs close to 50 per cent of rural workforce, wage rate for rural India has been declining consistently in recent years.
Last September, it came down by 3.8 per cent. Given the food inflation picking up, it means that rural poor must be spending less and less.
And since 2010-11, India’s economic growth has largely been fuelled by consumption expenditure; accounting for 59 per cent of its growth.
If rural India continues to register low rate consumption expenditure, the national economy would reflect it in low economic growth. And for the world economy, as the latest IMF forecast suggests, it would be again bad news.