Policymakers must break India’s cycle of poverty

News: Many reports suggest widespread unemployment and consequent poverty on the rise in India.

As per CMIE data, 5.46 million Indians lost jobs in October. The youth unemployment rate was 22.26% in 2021 – compared to 15.66% in 2016–17. There are about 20 million Indians entering the job market annually. But in August 2021, around 33% of all employable youths were estimated to be unemployed.

How policies adopted by India have led to this situation?

Major sectors like textile have become stagnant and less competitive. For example, labour cost of producing one shirt in India is $0.5, as compared to $0.22 in Bangladesh. As per a World Bank estimate, 12 million jobs in the textile sector shifted from China to Bangladesh, while India’s textile sector remained stagnant.

Inflation has raised prices of petrol to rupees 100 per litre. Yet, as per estimates, owing to poor government incentives and policies, electric vehicle sales are low and are likely to comprise only 8% of total sales by 2030. This is in contrast to China, which is expected to have 40% of Electric cars.

Moreover, the government has pushed for domestic LPG for household consumption. India should have instead pushed for electric cookstoves which would have helped reduce the import demand and would have shielded the consumers from price hikes.

India also find prices of edible oils rising almost 30 to 40% over the last year. This is due to dependence on the import of palm oil and also a push for the Production of biodiesel.

How have these aggravated the poverty?

An average farmer’s net worth declined by 33.8% between 2013 and 2019. An average entrepreneur’s wealth declined by 30% on a real value basis. Between 2012 and 2018 the debt of rural households rose by 35% and urban households by 22.4%.

The poorest category of people were given loans at rates which were as high as 25 to 40%.

All this happened, while 1% of rich Indians hold 73% of national wealth as quoted by Oxfam in 2017.

What should be the way forward?

MSMEs are the driver of growth and employment. While the push for formalization is required, it should not reduce the growth potential of the MSMEs.

Source: This post is based on the article “Policymakers must break India’s cycle of poverty” published in the Indian Express on 30th November 2021.