Developmental Economics

Economy - Developmental Economics

Poverty and Unemploymnt

Introduction:

• Development economics is a branch of economics that focuses on improving fiscal, economic, and social conditions in developing countries.
• Development economics considers factors such as health, education, working conditions, domestic and international policies, and market condition with a focus on improving conditions in the world's poorest countries.
• Development economics studies the transformation of emerging nations into more prosperous nations. Strategies for transforming a developing economy tend to be unique because the social and political backgrounds of countries can vary dramatically.
• Some aspects of development economics include determining to what extent rapid population growth helps or hinders development, the structural transformation of economies, and the role of education and health care in development.
• They also include international trade and globalization, sustainable development, the effect of epidemics such as HIV and AIDS, and the impact of catastrophes on economic and human development.

Main Indicators of the Developmental economics:

1. Poverty
2. Unemployment
3. Social Infrastructure

Poverty:

Concept:

• Poverty is a social phenomenon wherein a section of society is unable to fulfill even its basic necessities of life. The UN Human Rights Council has defined poverty as “A human condition characterized by the sustained or chronic deprivation of the resources, capabilities, choices, security and power necessary for the enjoyment of an adequate standard of living and other civil, cultural, economic, political and social rights”.
• The poor are those who live Below the Poverty Line (BPL). The poverty line is defined in terms of per capita household expenditure. Poverty manifests itself in the form of both absolute poverty as well as relative poverty.

Causes of Poverty:

The extent of poverty in an economy is due to a wide range of factors as follows:

• Underdeveloped nature of economy.
• Rapid growth of population in an overpopulated country; even if the national income increases, the per capita income remains the same due to increase in population.
• Large inequalities in the ownership of earning assets such as land, buildings, industry etc.
• Low level of productivity in agriculture and industry.
• Large scale unemployment and under-employment.
• Inequality of opportunity in acquiring education and skills.
• State Policies.
• Regional disparities.

Types of Poverty:

Absolute Poverty: This concept is based on absolute needs of the people and people are defined as poor when some absolute needs are not sufficiently satisfied. It is also defined in terms of insufficiency of basic needs. In India, these basic needs are measured in terms of calorie intake of 2400 in rural areas per person per day and 2100 in urban areas. The corresponding monetary yardstick for calorie intake is based on per capita monthly household expenditure.

Relative Poverty: This concept is related to the general standard of living in a society. Thus, according to this concept, people are poor because they are deprived of the opportunities, comforts and self-respect regarded as normal in the community to which they belong. In relative poverty, poor are defined as, a person or family whose incomes are less than the average income of the community. Thus, Relative Poverty relates to inequalities in a society. India is characterised by both in extreme measures, i.e., absolute and relative poverty.

Situational Poverty: It is a temporary type of poverty based on occurrence of an adverse event like environmental disaster, job loss and severe health problem. People can help themselves even with a small assistance, as the poverty comes because of unfortunate events.

Generational Poverty: It is handed over to individual and families from one generation to the another. This is more complicated as there is no escape because the people are trapped in its cause and unable to access the tools required to get out of it.

Rural Poverty: It occurs in rural areas with population below 50,000. It is the area where there are less job opportunities, less access to services, less support for disabilities and quality education opportunities. People are tending to live mostly on the farming and other menial work available to the surroundings.

Poverty line basket:

Determining composition of the basket is among most debated part of the issue. To make a living people consume innumerable items. Apart from food; housing, fuel, health, education, communication, conveyance, entertainment/recreations are the things which are important. But whether they should be included or not, if so their weights in basket, whether health should get preference over housing, or whether reasonable expenditure on recreation be included in basket etc. are toughest questions to be answered. Problem is that these are qualitative aspects, which are needed to be quantified.

Poverty in India:

2000s onwards:

• The Saxena Committee report, using data from 1972 to 2000, separated calorific intake apart from nominal income in its economic analysis of poverty in India, and then stated that 50% of Indians lived below the poverty line. The Planning Commission of India, in contrast, determined that the poverty rate was 39%.
• The Suresh Tendulkar Committee set up to look into the people living under the poverty line in India submitted its report in November 2009. It provided a new method of calculating the poverty line based on per capita consumption expenditure per month or day. For rural areas, it was Rs 816 per month or Rs 27 per day. For urban areas, it was Rs 1000 per month or Rs 33 per day. Using this methodology, the population below the poverty line in 2009-2010 was 354 million (29.6% of the population) and that in 2011-2012 was 269 million (21.9% of the population).
• The Rangarajan Committee set up to look into the poverty line estimation in India submitted its report in June 2014. It amended the calculation of the poverty line based on per capita consumption expenditure per month or day given by the Tendulkar Committee. The new poverty threshold for rural areas was fixed at Rs 972 per month or Rs 32 per day. For urban areas, it was fixed at Rs 1407 per month or Rs 47 per day.
• Under this methodology, the population below the poverty line in 2009-2010 was 454 million (38.2% of the population) and that in 2011-2012 was 363 million (29.5% of the population).

Anti-Poverty Strategy:

• Inclusive growth
• Financial Inclusion

Major Reasons for Failure of Poverty Alleviation Programmes:

• Planning process is faulty
• Identifying the ‘poor’
• Defining ‘poor’
• Processing of the identification involves too many stages.
• Lack of technology up gradation.
• Ideally the programs should be broader based. (benefitting the large number of people).
• Disjointed programs- not integrated. (Beneficiaries overlap, the same rural areas benefited from served programs.)
• Implementation of programs:
• Corrupt officials/ staffs.
• Lack of involvement of people.
• Local politics. (selection of beneficiaries)
• Improper follow up of program/ review or revision is practically none existed.
• Lack of support from the credit and marketing system:
• Role of local money lenders and banks.
• Inability to sustain income generation from the asset credited.

Steps Needed:

• Adopt a comprehensive reform approach to further lower the incidence of poverty and reverse the pattern of growing inequality. This multi-dimensional approach must include education, health care and labour market reforms.
• Enhance the cost effectiveness properties of the MGNREGA, by ensuring that the wage is set at a level around the minimum wage.
• Re-target environmentally harmful subsidies, to more directly support poor households and increase equity.
• Tackle regulatory and infrastructure barriers still preventing small towns from realising their potential.

Unemployment

Concept: Unemployment is a situation when a capable and willing to do job workforce does not get work.

Phillips Curve

It is a graphic curve which advocates a relationship between inflation and unemployment in an economy. As per the curve there is a ‘trade of’ between inflation and unemployment, i.e., an inverse relationship between them. The curve suggests that lower the inflation, higher the unemployment and higher the inflation, lower the unemployment.

Business Cycle

The business cycle describes the rise and falling production output of goods and services in an economy.

Types of Unemployment:

• Cyclical Unemployment: It is caused due to business cycle. This kind of an unemployment occurs when all those who want to work cannot be employed because there is not enough demand in the market for their work. It is called as, cyclical unemployment because it varies with the trade cycle.
• Frictional Unemployment: This kind of unemployment occurs when a person leaves/loses a job and starts looking for another one. This search for a job may take a considerable amount of time resulting in frictional unemployment. Frictional unemployment tends to be on a high when an economy is not doing so well and low otherwise because during good times it will be easier for people to find jobs that match their skills and requirements easily.
• Seasonal Unemployment: This kind of unemployment is expected to occur at certain parts of the year. For example, the jobs at a hill station may experiences seasonal unemployment during the winter months because less people will visit these areas during this time.
• Structural Unemployment: This kind of unemployment happens when the structure of an industry changes. For example, as the country is tending to move from use of bicycles to motorbikes and cars, the demand for labor in the cycle industry has continuously fallen in the country.
• Full Employment: Employment would be full literally when every able-bodied adult works the number of hours considered normal for a fully employed person.
• Under Employment: This term can be used in multiple connotations but one of the primary usage is to showcase a situation where a person with high skills works in low wage and low skills job.
• Disguised Unemployment: Such type of unemployment is quite common in the agri-cultural sector in India. It occurs when people are employed in a job where their presence or absence does not make any difference to the output of the economy.

Nature of Unemployment in India:

India being a developing country, the nature of unemployment therefore is in stark contrast to the one observed in the developed countries. In developed countries, unemployment is driven by a fall in demand because as the demand for goods and services, machines fall idle and the demand for labour goes down. But in India, the bigger problem is that of under-employment or disguised unemployment, which is not due to the lack of demand for goods but due to the shortage of capital equipment etc. in the economy. Because of lack of capital stock, India has not been able to commensurately meet the needs of the growing labour force in the country.

This manifests itself in two ways:

• The prevalence of large scale unemployment in the urban areas.
• In rural areas the growing numbers engaging themselves in the agricultural sector resulting in disguised unemployment.

As per one of NSS data 8.5 million people in the rural areas and 1.2 million people in the urban areas work for less than 14 hours a week resulting in underemployment.

Solution:

The basic solution to the entire problem is faster rate of capital formation so as to enlarge employment opportunities. For this the government needs to encourage savings and their productive utilization in increasing the rate of investment. The state itself can participate in the process of capital formation by undertaking such development activities as the private entrepreneurs do not find it profitable to undertake. There is also a need for the government to increase and attract more foreign investment in a country like India.

Social Infrastructure:

What is Social Infrastructure?

Infrastructure can broadly be defined as long-term physical assets that operate in markets with high barriers to entry and enable the provision of goods and services. Social services include, education, sports, art and culture; medical and public health, family welfare, water supply and sanitation, housing; urban development; welfare of Schedule Castes (SCs), Schedule Tribes (STs) and Other Backward Castes (OBCs), labour and labour welfare; social security and welfare, nutrition, relief on account of natural calamities etc. Expenditure on ‘Education’ pertains to expenditure on ‘Education, Sports, Arts and Culture’.

Status of Social Sector in India:

The expenditure on social infrastructure like health and education is a critical indicator of the commitment of the government towards these sectors. Public investment in social infrastructure has a critical role in providing access to social services for the people, especially the marginal and vulnerable sections of the society. The expenditure on social services by the Centre and States as a proportion of Gross Domestic Product (GDP) has registered an increase of more than 1 percentage points during the period 2014-15 to 2018-19 (BE), from 6.2 per cent in 2014- 15 to 7.3 per cent in 2018-19 (BE). The increase was witnessed across all social sectors especially education where the public expenditure as a per cent of GDP increased from 2.8 per cent in 2014-15 to 3 per cent in 2018-19. The share of expenditure on social services out of total budgetary expenditure increased from 24.9 per cent in 2013-14 to 26 per cent in 2018-19.

• Education in India: As per Educational Statistics at a Glance (ESAG), 2018, the thrust on providing primary education has yielded results across social categories and gender in Gross Enrollment Rate (GER). Over the years, remarkable progress has been made in respect of female participation up-to secondary level and GER for girls has exceeded that of boys. But girls’ enrollment rate is lower than that of boys at the higher education level. At this level, the gap is visible across the social categories too. The Pupil Teacher Ratio (PTR) at national level for primary schools is 23, 17 for upper primary, 27 for secondary and 37 for senior secondary schools.
• Gender Parity Index (GPI) based on GER: GPI based on GER indicates increasing trend of female participation at all levels. At the higher education level the GPI is low. Although, enrolment of girls is higher than that of boys in government schools, the pattern gets reversed in private schools. The gender gap in enrollment in private schools has consistently increased across age groups.
• Status of Health: Public health expenditure (centre, states and local bodies), as a percentage of Total Health Expenditure (THE) increased from 22.5 per cent in 2004-05 to 30.6 per cent in 2015-16. The National Health Mission (NHM), with its two sub-missions National Urban Health Mission (NUHM) and National Rural Health Mission (NRHM) envisages achievement of universal access to equitable, affordable and quality healthcare services that are accountable and responsive to peoples’ needs. Under this Mission, support is provided to States/UTs to provide accessible, affordable, accountable and effective healthcare up to District Hospital level. Major programme components under NRHM are Reproductive-Maternal- Neonatal-Child and Adolescent Health and Communicable and Non- Communicable diseases.
• Skill Development: The schooling system improves the educational level of the population. It is skill training that equip the youth to enter the labour market and improves their employability. According to NSSO Report 2011-12, only 2.3 per cent of the total workforce in India had formal sector skill training. Keeping in view the predominance of young population, the government had formulated the National Policy on Skill Development & Entrepreneurship, 2015 under which the Skill India Mission by 2022 was formulated.

Government Initiatives:

The government has been committed to provision of social security which is evident in the initiation of major social sector schemes by the Government of India during the last five years given below:

• Pradhan Mantri Suraksha Bima Yojana, 2015 - It offers a one-year accidental death and disability cover with annual premium of Rs. 12. It is available to people in the age group 18 to 70 years.
• Pradhan Mantri Jeevan Jyoti Bima Yojana, 2015 - It is government-backed life insurance scheme with annual premium of Rs. 330. It is available to people between 18 and 50 years of age.
• Pradhan Mantri Vaya Vandana Yojana, 2018 - It is a pension scheme exclusively for the senior citizens aged 60 years and above.
• PM-KISAN, 2019 - It offers income support of Rs. 6000 per annum in three equal instalments to all eligible farmers irrespective of land holdings.
• National Nutrition Mission (POSHAN Abhiyaan) - It ensure attainment of malnutrition free India by 2022. Targeted intervention in areas with high malnutrition burden.
• Skilling Ecosystem - Skilling ecosystem in India is equipping the youth to meet the challenges of a dynamic labour market by providing various short term and long term skilling under programmes like 'Pradhan Mantri Kaushal Vikas Yojana' (PMKVY). PMKVY has had positive impact on employment and incomes of the youth as per evaluation studies.
• Rural Infrastructure - Connectivity is critical for rural areas to improve quality of lives of the poor by enhancing access to various social services, education, health and access to markets. PMGSY has played a crucial role in connecting the unconnected in rural India and enhanced their livelihood opportunities. Government has accorded highest priority to rural housing, by providing dwelling with all basic facilities to the most needy under Pradhan Mantri Awas Yojana (Gramin) (PMAY-G). Government has also prioritized employment programmes like MGNREGS which is reflected in the upward trend in budget allocation and release of funds to the States in the last four years.
• Financial Inclusion - Financial inclusion of women is considered as an essential tool for empowerment of women as it enhances their self confidence and enables financial decision-making to a certain extent. As far as financial inclusion in India is concerned, significant progress has been made during the last decade. At all India level, the proportion of women having a bank or saving account that they themselves use have increased from 15.5 per cent in 2005-06 to 53 per cent in 2015-16.

Way Forward:

• India's development trajectory is critically intertwined with the investments in social infrastructure. To reap the benefits of demographic dividend, the government is committed to improve the outcomes in education and skilling and to provide employment and affordable healthcare to all.
• Scaling up development programmes for improving connectivity, providing housing and bridging gender gaps in socio-economic indicators is of paramount importance for sustainable development. India's march towards achieving SDGs is firmly anchored in investing in human capital and inclusive growth.
• Inclusiveness has been the cornerstone of India’s development agenda. As India is a developing economy with resource constraints, we have to prioritize and optimize the expenditure on social infrastructure to promote sustainable and inclusive growth.