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India’s rise as the emerging services factory of the world

Why in News?

Recently, a report titled “India’s rise as the emerging services factory of the world” was released by Goldman Sachs. Goldman Sachs is a leading global investment banking, securities, and investment management firm that provides a wide range of financial services to a substantial and diversified client base, including corporations, financial institutions, governments, and individuals.

Crucial Insights of the Report On India’s Services Sector

• Rise in India’s Service Exports: India’s services exports reached $340 billion in 2023, positioning the country as the ‘services factory’ of the world. The service exports have more than doubled over the past 18 years and are projected to reach $800 billion by 2030. While global services exports tripled during this period, India’s growth rate was double that of the global average, moving from 2% to 4.6% of total exports.
• Contribution to Indian Economy: The services sector is expected to contribute 11% to GDP, an increase from 9.7% in 2023. The current account deficit is projected to be 1.1% of GDP by 2030, assuming stable commodity prices and trade balances. Consulting services experienced the fastest growth, while travel services lagged.
• Domestic Concerns: The report highlighted resource stress in Bengaluru, a key hub for computer services, particularly regarding water supply, and the need for a skilled workforce.

Outsourcing Success Stories - How India Became the Global Hub for Business Transformation:

• Tata Consultancy Services (TCS) and Nielsen: TCS upgraded Nielsen’s IT framework, enhancing its data analytics capabilities, showcasing India’s ability to revitalize complex global processes.
• Wipro and Citibank: Wipro created scalable core banking solutions for Citibank, demonstrating India's strengths in fintech with globally relevant applications.
• IBM India and Bharti Airtel: IBM India played a crucial role in enhancing Bharti Airtel's IT operations, improving customer service and operational efficiency, which underscores the effectiveness of Indian tech solutions in telecommunications.

Fall on Target:

• The projected growth of service exports is expected to fall short of the government’s target of $1 trillion by 2030, as outlined in India’s foreign trade policy.
• International Concerns: The report also mentioned that India's service exports are vulnerable to global demand shifts in ICT spending and increasing protectionism in destination markets.

Actions Required:

• A Calibrated Approach: India must adopt a strategic approach focusing on enhancing global market access for professional services and a regulatory environment conducive to innovation in sectors like AI, manufacturing-linked services, and blockchain technology.
• Need for Specific Focus: India should not be complacent about service exports as projections indicate a shortfall against government targets. The service sector plays a crucial role in India’s ambition to become a $5 trillion economy by 2025.

Service Sector in India

• Nature of Service Sector: The service sector, also referred to as the tertiary sector, is one of the three primary sectors of the economy, alongside the primary (agriculture, forestry, mining) and secondary (manufacturing, construction) sectors.
• Scope of Services: It encompasses a diverse array of activities including trade, hospitality, transportation, finance, insurance, real estate, business services, and personal services.
• Evolution & Development: The service sector began expanding in the mid-1980s, gaining significant momentum during the 1990s due to economic reforms addressing balance of payments issues.

Jurisdiction:

• Union List: Telecommunications, postal services, broadcasting, financial services, and national highways.
• State List: Healthcare, real estate, retail, and services related to agriculture.
• Concurrent List: Professional services, education, and electricity.
• Economic Contribution: The service sector contributes over 50% to India’s GDP and has become the largest employment generator with a growth rate of 5-7% in 2022.
• Foreign Trade: Service exports reached approximately $163.94 billion, with a trade surplus of $75.05 billion anticipated for 2023-24.

Future Prospects of Service Sector in India:

• The healthcare industry is projected to grow to $372 billion by 2025.
• The digital economy is estimated to reach $1 trillion.
• IT and business services are expected to achieve a valuation of $14.3 billion with an 8% growth rate.
• By 2035, AI is expected to enhance India’s annual growth rate by 1.3%.

Reasons for Growth in Services Sector:

• Structural Transformation: Liberalization, Privatization, and Globalization (LPG) reforms have opened new avenues for growth in sectors like banking, insurance, and transportation.
• Technological Advancements: Innovations in technology have fostered outsourcing and expanded the service industry, increasing the demand for services in agriculture and industry.
• Rising Demand: There is a growing domestic population and high demand for essential services like healthcare and education.
• Attractive Ecosystem: Government initiatives such as Start-up India and Digital India have boosted the sector’s potential, aided by low setup costs and a developed financial market.
• Skilled Workforce: India boasts a large pool of skilled IT professionals, making it a global outsourcing hub.
• Improved Productivity: Technology advancements have increased output in manufacturing and agriculture.
• Global Technology Hub: India is home to about 75% of global digital talent, with a goal to increase the digital economy’s contribution to 20% of GDP.

Some Developments in the Services Sector in India

• FDI Inflows: The services sector has attracted $106.70 billion in FDI from April 2000 to September 2023.
• Banking Sector Growth: Scheduled banks saw a surge in deposits totaling Rs. 1.75 lakh crore as of December 2023.
• Telecommunications: As of August 2023, India had a telephone subscriber base of 1,179.21 million and a broadband subscriber base of 876.53 million, with a teledensity of 84.69%.
• Startups: Since the launch of the Start-up India initiative, 98,119 entities have been recognized as startups as of April 2023.
• Healthcare Growth: The healthcare sector is growing at a CAGR of 16%, with total spending expected to reach $50 billion by 2025.

Initiatives taken by India to Promote Service Sector Growth:

• Action Plan for Champion Sectors: Focused efforts on 12 identified Champion Services Sectors.
• PM Jan Dhan Yojana: As of November 2022, 47.39 crore bank accounts were opened under this scheme, with total deposits of Rs. 1.76 lakh crore.
• Production-Linked Incentive (PLI): Launched in October 2021 to boost manufacturing in telecom and networking products.
• Mahatma Gandhi National Fellowship (MGNF): Phase II launched in October 2021 to empower students and enhance skill development.
• PM Ayushman Bharat Health Infrastructure Mission: Launched in October 2021 to strengthen healthcare networks over the next four to five years.
• 100% FDI in Insurance: The FDI limit for insurance companies has been increased to 74% and 100% for intermediaries.
• Third Phase of PM Kaushal Vikas Yojana: Launched in January 2021 to focus on new-age and COVID-related skills.
• National Digital Health Mission: Aimed at providing unique health IDs to all Indians and transforming the healthcare sector.
• National Broadband Mission: Launched to ensure broadband access in all villages by 2022.
• IGnITE Programme: Launched in December 2020 to enhance technical education and training based on the German DVET model.
• PM Gati Shakti: A national master plan for multimodal connectivity infrastructure.
• Bharatmala Project: Focused on improving connectivity in North East India.
• Start-up India: Aimed at fostering a startup culture in the country.

Significance of the Service Sector in India

• Economic Growth & Development: The service sector accounts for over 50% of India’s economic output and plays a major role in attracting foreign investment and generating employment.
• Employment Generation: It employs about 30.7% of the Indian population.
• Foreign Exchange: Services like IT and medical tourism contribute significantly to foreign exchange earnings.
• Global Outsourcing Hub: India is a key player in global outsourcing, particularly in IT and knowledge-based services.
• Knowledge-Based Economy: India produces a large number of highly skilled professionals.
• E-commerce and Retail Growth: Significant growth driven by increased consumer spending and digital transformation.
• Tourism and Cultural Exchange: The tourism sector enhances India’s reputation as a global tourist destination.

Challenges Faced by the Services Sector in India

• Lack of Government Incentives: Experts argue that the government has not provided adequate incentives to the services sector compared to manufacturing.
• Trade Restrictions: Foreign governments impose restrictions that limit the export potential of India’s services.
• Access to Finance: Many small service firms struggle to obtain affordable financing, hampering their competitiveness.
• Complex Regulations: Frequent regulatory changes create obstacles for growth.
• Infrastructure Challenges: Inadequate infrastructure, particularly in transportation and logistics, impedes service delivery.
• Shortage of Skilled Labor: There is often a mismatch between the workforce's skills and industry demands.
• Technology Advancements: Some service sectors lag in technology adoption, affecting efficiency.
• Data Privacy and Security: Concerns regarding data privacy are increasingly relevant in the digital age.

Way Forward

• Policy Interventions: Structured government interventions are necessary to enhance the services sector, including launching a ‘Services from India’ initiative similar to Make in India.
• Action on Priority Basis: The services sector should be prioritized in trade negotiations to enhance its role in international trade.
• Setting Standards: India should advocate for global data governance standards and address data privacy issues.
• Comprehensive Roadmap: A detailed roadmap for diversifying the services sector, especially in healthcare, tourism, and telecommunications, is essential.
• Cultivating Soft Skills: There is a need for educational programs that blend technical knowledge with soft skills essential for success in service roles.

Conclusion

India's services industry is emerging as a unique market globally due to its competitive advantages and skill sets. Supported by numerous government initiatives like Smart Cities, Clean India, and Digital India, the sector is poised for significant growth, potentially unlocking multi-trillion dollar opportunities and fostering economic development.

India to Import at Concessional Duty

Why in News?

Recently, India has permitted limited imports of corn, crude sunflower oil, refined rapeseed oil, and milk powder under the Tariff-Rate Quota (TRQ). This decision aims to tackle the escalating food inflation in the country.

What is India's Position in Vegetable Oil and Milk Market?

India’s Position in Vegetable Oils:

• India is recognized as the largest importer of vegetable oils globally, including palm oil, soya oil, and sunflower oil, meeting nearly two-thirds of its demand through imports.
• Palm oil constitutes about 40% of India's vegetable oil consumption, with the majority sourced from Indonesia and Malaysia.
• In 2021, India launched the National Mission on Edible Oil-Oil Palm to enhance domestic palm oil production.
• Sunflower oil and soybean oil are primarily imported from countries like Russia, Ukraine, Argentina, and Brazil.
• The top five producers of edible oil worldwide include China, India, the United States, Indonesia, and Brazil.

Milk Production:

• India holds the title of the top milk producer, accounting for approximately 24.64% of the global milk production in the 2021-22 period, according to the Food and Agriculture Organisation (FAO).
• The National Dairy Development Board (NDDB) reported a remarkable 58% rise in milk production from 2014-15 to 2022-23, reaching a total of 230.58 million tonnes.

Corn:

• India ranks fourth in the world in terms of corn cultivation area and is the seventh-largest producer, contributing about 2% to the global corn output.
• Estimates for corn production in 2023-24 suggest a yield of around 33.5 million metric tons.
• The leading producers of corn globally include the United States, China, and Brazil.

What is Concessional Duty?

About:

• Concessional duty refers to a lower tariff or tax applied to imported goods compared to the standard rate.

Reasons for Imposition:

• Reduced Import Costs: By lowering tariffs, the government aims to make imports more affordable, benefiting consumers by lowering domestic prices.
• Control Prices: This measure can help stabilize domestic prices, particularly for essential commodities.
• Encourage Specific Industries: Lower duties on raw materials can stimulate domestic production in targeted industries.
• Strengthen Trade Relations: Implementing concessional duties can enhance trade partnerships with other nations.
• Temporary Measure: Such duties are often introduced as short-term solutions to address specific issues like high domestic prices or shortages. Once the situation normalizes, the duty may revert to the standard rate.

Rooftop Solar in India's Energy Sector

Why in news?

As of March 2024, India's total installed rooftop solar (RTS) capacity reached 11.87 gigawatts (GW), with a significant increase of 2.99 GW added during the year 2023-2024. This growth underscores the considerable transformative potential of RTS in India's energy landscape.

What is the Rooftop Solar Programme?

• About: The Rooftop Solar Programme was launched by the government in 2014 to encourage the installation of rooftop solar systems. The initial target was to achieve 40 GW of installed capacity (from a total of 100 GW by 2030) by 2022. However, this goal was not achieved, leading to an extension of the deadline to 2026.
• Definition: Rooftop solar panels are photovoltaic systems installed on the roofs of buildings, connected to the main power supply.
• Objective: The primary aim is to promote grid-connected solar rooftop systems for residential buildings.
• Historical Context: This initiative is part of the Jawaharlal Nehru National Solar Mission launched in 2010. Initially, the target was 20 GW of solar energy by 2022, which was later revised to 100 GW, including 40 GW from RTS.

Key Initiatives under Rooftop Solar:

• SUPRABHA: Sustainable Partnership for RTS Acceleration in Bharat.
• SRISTI: Sustainable Rooftop Implementation for Solar Transfiguration of India.

Implementation and State Performance: The programme is centrally managed by the Ministry of New and Renewable Energy (MNRE) and executed through state nodal agencies and power distribution companies.

• Top-performing States: Gujarat, Maharashtra, Rajasthan.
• Moderate performers: Kerala, Tamil Nadu, Karnataka.
• Underperformers: Uttar Pradesh, Bihar, Jharkhand.

What is the Significance of the Rooftop Solar Programme?

• Decentralised Energy Production: This initiative decreases reliance on centralized power grids, enhancing energy security and resilience by enabling households to install rooftop solar panels.
• Economic Advantages: It helps lower electricity bills for consumers, creates jobs in the solar sector, and minimizes the need for expensive upgrades to grid infrastructure.
• Energy Independence: This programme allows consumers to become 'prosumers' (both producers and consumers), reducing dependence on fossil fuels and energy imports.
• Rural Electrification and Energy Diversification: It provides electricity to remote areas lacking grid access, improves living standards in underserved communities, and contributes to a more diverse and stable energy mix.
• Sustainable Development: The programme aligns with the UN Sustainable Development Goals (SDG 7) and supports India's commitment to renewable energy and climate action.

What is India’s Current Solar Capacity?

• India's Rooftop Solar Capacity: As of March 2024, India's total installed rooftop solar capacity is approximately 11.87 GW, with Gujarat leading and Maharashtra following.
• RTS Potential: India's overall RTS potential is about 796 GW. A report by the Council on Energy, Environment and Water (CEEW) indicates that only 20% of rooftop solar installations are in the residential sector, with the majority in commercial and industrial areas.
• Household Potential: The CEEW report estimates that India's 250 million households could potentially install up to 637 GW of rooftop solar capacity, fulfilling one-third of the country's residential electricity demand.
• Total Installed Capacity: By December 2023, India's total solar capacity was approximately 73.31 GW, with Rajasthan at 18.7 GW and Gujarat at 10.5 GW.

What is PM Surya Ghar Muft Bijli Yojana?

• This scheme aims to provide RTS systems to 1 crore households, offering participating households 300 units of free electricity monthly.
• The scheme targets residential consumers with systems up to 3 kW capacity, benefiting a large number of households across India.
• Registration and Installation: Interested residents must register on the national rooftop solar portal and choose a vendor from a provided list. Eligibility requires a valid electricity connection and no prior subsidy received for solar panels.
• Financial Setup: The scheme is financed with a central allocation of Rs 75,021 crore, mainly given as direct subsidies to consumers, and includes provisions for payment security in renewable energy service company models.
• Key Benefits: Benefits include free electricity, reduced electricity bills, payback periods of three to seven years, lower costs for the government, increased adoption of renewable energy, and decreased carbon emissions.

What are the Different Challenges and Way Forward Related to RTS?

• High Initial Costs: A typical 3 kW residential system costs around Rs. 1.5-2 lakhs (before subsidies), while commercial installations can range from Rs. 40-50 per watt.
• Policy Reforms: There is a need to expand and simplify subsidies, increase subsidy coverage for larger systems, and streamline the subsidy disbursement process.
• Innovative Financing Models: Promoting solar leasing and power purchase agreements (PPAs) can help reduce financial barriers.
• Limited Awareness: Currently, only 20% of RTS installations are residential, indicating a need for greater awareness in rural areas.
• Awareness and Outreach: Comprehensive public awareness campaigns and social media engagement can enhance understanding and adoption of RTS.
• Grid Integration Challenges: States like Rajasthan, Gujarat, and Tamil Nadu face grid stability issues due to intermittent solar generation.
• Grid Modernization: Investments in smart grid technologies and energy storage solutions are crucial for better integration of distributed solar generation.
• Limited Skilled Workforce: An estimated 300,000 skilled workers are needed in the solar sector to meet demands, highlighting the necessity for training programs.
• Capacity Building and Technology and Innovation: Expanding training initiatives like 'Suryamitra' and investing in research and development for more efficient solar technologies are essential for growth.

Trends in Remittances Inflow

Why in News?

According to the latest report by the World Bank, the growth in remittances to India is projected to decrease significantly in 2024 compared to 2023. This decline is linked to reduced monetary transfers from Gulf Cooperation Council (GCC) nations due to falling oil prices and production cuts.

What are Remittances?

• Definition: Remittances refer to the money or goods that migrants send back to their families in their home countries for financial support.
• Significance: They serve as a vital source of income and foreign exchange for many developing nations, particularly in South Asia.
• Impact: Remittances contribute to poverty alleviation, improved living standards, enhanced education, and healthcare, and stimulate economic activities.
• Migration: In 2023, India had 18.7 million emigrants.

Growth of Remittances:

• In 2023, India received USD 120 billion in remittances, reflecting a growth rate of 7.5%.
• Forecasts suggest an increase to USD 124 billion in 2024, with growth rates of 3.7%, and a further rise to USD 129 billion by 2025, indicating a growth rate of 4%.

Remittances Inflows in Countries:

• In 2023, India led the remittance inflow rankings, followed by Mexico at USD 66 billion, China at USD 50 billion, the Philippines at USD 39 billion, and Pakistan at USD 27 billion.
• Data from the Reserve Bank of India indicates that India's foreign assets grew more than its liabilities in the fiscal year 2023-24.

What are the Factors Affecting Remittance Flows to India?

• Top Sources of Remittances for India: Approximately 36% of total remittance flows into India come from highly skilled Indian migrants living in affluent countries like the United States, the United Kingdom, and Singapore.
• Post-Pandemic Recovery: The recovery from the pandemic has led to a tight labor market in these regions, resulting in wage increases that have positively influenced remittance amounts.
• The UAE contributes 18% of India's remittances, while Saudi Arabia, Kuwait, Oman, and Qatar account for an additional 11%.

Reason for Consistent Remittance Inflow:

• Strong Economic Conditions: In developed economies, such as the US, UK, and Singapore, lower inflation rates and robust labor markets have significantly benefited skilled Indian professionals, thereby enhancing remittance inflows.
• Employment Growth: High employment growth and reduced inflation in Europe have contributed to a global increase in remittance flows.
• Diversified Migrant Pool: India's migrant population is increasingly spread across various countries, providing a safety net during economic downturns in any specific region.
• Favorable Economic Conditions in GCC: High energy prices and controlled food inflation in GCC nations have positively impacted employment and income levels for Indian migrants, particularly in less-skilled sectors.
• Local Currency Settlement System: India and the UAE established a pact in 2023 aimed at creating a Local Currency Settlement System (LCSS) to promote the use of the Indian Rupee and UAE Dirham for international transactions, which is expected to further boost remittance flows.
• Improved Remittance Channels: Initiatives such as the Unified Payment Interface (UPI) have enabled real-time fund transfers, significantly simplifying the remittance process.

How can Remittance Inflow in India be Increased?

• Boosting Financial Inclusion: World Bank data shows that only 80% of Indians have bank accounts. Expanding formal financial services, especially in rural areas, could facilitate easier remittance transfers through a broader network of bank branches, ATMs, and digital platforms.
• Reducing Remittance Costs: Currently, remittance costs in India are high (5-6%). Introducing competition among remittance service providers and promoting digital channels could help lower transaction costs.
• Enhancing Remittance Infrastructure: Upgrading payment systems and adopting new technologies like blockchain could streamline the remittance process. Initiatives by the Reserve Bank of India, such as the Centralized Payment System, Real Time Gross Settlement (RTGS), and National Electronic Funds Transfer (NEFT), are steps in this direction.
• Targeted Diaspora Engagement: Increasing government engagement with the Indian diaspora through initiatives like Pravasi Bharatiya Divas and the Know India Programme can strengthen connections and encourage remittances.
• Offering Attractive Investment Options: Providing appealing investment opportunities and tax incentives could encourage higher remittance inflows, as suggested by data from the International Monetary Fund (IMF).
• Promoting Economic Stability: Implementing sound macroeconomic policies, improving the ease of doing business, and tackling corruption are critical for building diaspora confidence, making India a more attractive destination for remittance flows.

India's Ethanol Blending Program: Progress and Challenges

Why in news?

India is progressing towards its ambitious goal of blending 20% ethanol with petrol by 2025-26, as evidenced by rising blending percentages and enhanced ethanol production capacities. However, this initiative faces challenges, particularly the "food versus fuel" debate. Recent events, including increased maize imports and restrictions on sugarcane-based ethanol, underscore the difficulties in balancing energy needs with food security.

Why Adding Ethanol is a Strategic Advantage?

• Ethanol offers lower emissions and improved efficiency, making it a more sustainable fuel option.
• This transition reduces reliance on petroleum imports from West Asia.
• It contributes to environmental sustainability and strengthens India's economic resilience by positively affecting foreign reserves.

The Blending Target: Current Status and Projections

• The ethanol blending program aims for 20% ethanol integration with petrol by 2025-26.
• This goal translates to a target production of approximately 1,000 crore litres of ethanol.
• Current blending levels have increased from about 8% in 2021 to 13-15% in 2023.

The Food vs. Fuel Dilemma

• The dilemma centers on the use of food crops like maize and sugarcane for ethanol production, which could strain food supplies.
• As ethanol blending increases, it's crucial to balance fuel demand with food security and agricultural management.
• Ensuring that ethanol production does not compromise food security is essential.

Type of Biofuels

First-Generation Biofuel

• High carbon content, made from edible items such as sugar, corn, and starch.

Second-Generation Biofuel

• Lower greenhouse gas emissions compared to first-generation biofuels, created from agricultural residues like rice husk and wood chips.

Third-Generation Biofuel

• Carbon neutral; CO₂ emitted equals CO₂ sequestered, produced using microorganisms like algae.

Fourth-Generation Biofuel

• Produced from genetically modified crops, presenting a carbon-negative option.

Note: Current focus is on first-generation ethanol, derived directly from food grains and sugarcane. There's a need for the government to diversify towards second-generation and third-generation ethanols, which are less impactful on food security.

Government Policies and Industry Dynamics

• The NITI Aayog roadmap indicates a substantial increase in both sugarcane and grain-based distilleries to meet blending targets.
• Sugarcane-based distilleries must expand from 426 crore litres in 2021 to 760 crore litres by 2026, while grain-based distilleries should grow from 258 to 740 crore litres.
• Government interest subvention programs have been vital for facilitating this expansion, but there are calls for their continuation to ensure stability.

The Sugarcane Dilemma

• Three primary products are derived from sugarcane: juice and syrup, B-heavy molasses, and C-heavy molasses, in decreasing order of sugar content.
• The initial two products are typically used for sugar production, while C-heavy molasses is utilized for ethanol.
• The government has allowed the diversion of the first two for ethanol production, raising concerns about sugar availability.
• Recent restrictions on the diversion of B-heavy molasses and sugarcane juice demonstrate the need for a careful balance between ethanol production and sugar supply.
• Expanding sugarcane cultivation to meet ethanol demand raises water use concerns and impacts agricultural sustainability.
• To address shortfalls from B-heavy molasses restrictions, grain-based distilleries, mainly using maize, have operated at full capacity, leading to increased maize imports this year.

Increased Maize Imports: A Red Flag?

• Data indicates a significant rise in maize imports from April to June compared to the previous year.
• This increase is primarily due to heightened maize use for ethanol, filling the gap left by restrictions on sugarcane products.
• Despite claims of sufficient grain and sugar reserves, the spike in imports raises concerns about potential imbalances in the food supply chain.

Fuel Efficiency in Automobiles

• Ethanol blending reduces greenhouse gas emissions and can save foreign exchange while supporting rural economies.
• However, there are worries about how higher ethanol content may affect vehicle performance.
• Existing vehicles may see a decrease in fuel efficiency by an average of 6% when using ethanol blends, posing challenges for achieving E20 compliance without impacting performance.

Uttar Pradesh's Leadership

• Uttar Pradesh is not only at the forefront of sugar and sugarcane production but also leads in ethanol production.

Conclusion

• India's ethanol blending initiative marks a significant move towards sustainable energy and reduced greenhouse gas emissions.
• Achieving the 20% blending target necessitates careful management of the food versus fuel dilemma, adoption of advanced biofuels, and ongoing policy support for production infrastructure.
• A balanced approach that takes into account food security, environmental impact, and vehicle performance is essential for realizing the full potential of this ambitious program.

Poverty and Inequality Measures in India

Why in News?

Recently, PM’s Economic Advisory Council (PMEAC) chief Bibek Debroy advocated for a reassessment of India's official poverty line and suggested that inequality should be analyzed at the state level.

What is the Status of Poverty in India?

• Definition of Poverty: Poverty is a state where individuals or communities lack financial resources and essentials necessary for a minimum standard of living.
• International Poverty Line: In September 2022, the World Bank established the International Poverty Line at USD 2.15, based on 2017 prices. Individuals earning less than this amount daily are classified as living in extreme poverty.

Poverty Estimation in India:

• VM Dandekar and N Rath (1971): Conducted the first systematic poverty assessment in India using National Sample Survey (NSS) data from 1960-61, suggesting a poverty line based on the expenditure required for 2250 calories per day.
• Alagh Committee (1979): Developed a poverty line based on nutritional needs, recommending 2400 calories for rural areas at Rs 49.1 per capita per month and 2100 calories for urban areas at Rs 56.7 per capita per month.
• Lakdawala Committee (1993): Suggested the calculation of consumption expenditure based on calorie intake and proposed state-specific poverty lines updated using CPI-IW for urban areas and CPI-AL for rural areas.
• Tendulkar Committee (2005): Established by the Planning Commission, this committee reassessed poverty estimation methods and reported a rural poverty headcount ratio of 41.8% for 2004-05 and a pan-India poverty rate of 37.2%.
• Rangarajan Committee (2012): Chaired by former RBI governor C. Rangarajan, it defined poverty as living on less than Rs 47 per day in urban areas and Rs 32 per day in rural areas, estimating that poverty levels were significantly higher than previous estimates.

What is the Need of a New Official Poverty Line in India?

• Outdated Data: The current poverty line estimate is based on data that is over two decades old, making it ineffective for accurate poverty assessment.
• Inconsistent Global Data: Reports indicate that India saw an increase of 56 million poor people due to the pandemic in 2020, yet the government has not acknowledged this rise in poverty.
• Less Realistic Data: The current estimation methods do not reflect state-specific social and economic conditions, leading to unrealistic poverty assessments.
• Accuracy Issues: There is a lack of comprehensive inflation data segmented by household income, complicating the understanding of poverty levels.
• Institutional Issues: Criticism has arisen regarding India's statistical system, which has struggled to provide reliable empirical data and effectively communicate findings.
• Example: The Consumption Expenditure Survey from 2017-18 was withdrawn due to its alarming findings.

What is the Status of Inequality in India?

• Definition of Inequality: Inequality refers to the unequal distribution of income and opportunities among different societal groups.
• Income Inequality: This reflects how evenly income is distributed within a population.
• Ways to Measure Inequality: The Gini coefficient measures income or wealth inequality, with 0 indicating perfect equality and 1 indicating perfect inequality.
• Inequality in India: The Household Consumption Expenditure Survey 2022-23 reported a decrease in the Gini coefficient for consumption expenditure, from 0.283 in 2011-12 to 0.266, and from 0.363 to 0.314 in rural areas.

Way Forward

Institutional Reforms:

• Develop a Communication Strategy: Create a comprehensive plan to regularly inform stakeholders and the public about MoSPI's activities and methodologies.
• Relevant Data: Conduct periodic reviews of data collection methods to ensure they meet current needs.
• Emerging Issues: Expand data collection to include emerging issues like digital economy metrics and environmental statistics.
• Align with Global Practices: Form consultative committees with representatives from various sectors to provide feedback on statistical methods.
• Public Feedback Mechanisms: Implement mechanisms for public feedback to improve MoSPI’s publications and activities.

Conclusion

Poverty and inequality are deeply interconnected issues affecting societies worldwide and obstructing social and economic progress. Addressing these challenges requires a multifaceted approach that includes equitable economic policies, access to quality education, healthcare, and social protection. India must tackle data uncertainties by establishing a more accurate measure of the poverty line and the true number of individuals living in poverty. Revamping poverty data to ensure equitable income distribution is a crucial step forward.