The High GDP versus low per capita expenditure conundrum

The Indian economy is now the fourth largest in the world in terms of nominal GDP of ₹330 lakh crores. This needs to be unpacked to understand what it means in actual terms about the economic status of most Indian citizens. 30% of the GDP is contributed by Government expenditure from the Union to the local. Therefore, the contribution from private persons is roughly ₹230 lakh crores. The bottom 50% of the population contributes 5% of this private GDP or about ₹ 11.5 lakh crores. We can ignore for the time being the minimal benefits that accrue to the vast masses from Government expenditure and then we see that the per capita expenditure contribution of the bottom 50% of the population to the GDP is only 11500000000000/0.5*1450000000 = ₹15862. Thus, despite being the fourth largest economy in the world we have half the population living on just ₹43 or less per day. Alternatively, if we estimate per capita incomes for the lowest 50% then we get from the World Bank (https://data.worldbank.org/indicator/NY.GNP.PCAP.CD?locations=IN)  the latest value for 2023 as current US$ 2540, which at the then prevailing exchange rate of 82.5 comes to ₹209550. That means the total income of the country is ₹209550x1450million. Now, the bottom 50% contributes only 5% of this total income so the average per capita income of the bottom 50% = ₹20955.
Thus, the overall GDP is large because we have a large population but most of them are living in extremely low standards both earning and spending minimally.

A Fair Income

 The FAO has estimated that a healthy diet costs about US$4 per person per day, which applying the purchasing power parity conversion rate of ₹23 to the dollar works out to ₹92. So given an average household size of 4.4 currently this works out to a food expenditure of roughly ₹400 per household per day. The latest consumption expenditure survey conducted in 2022-23 by the National Statistical Organisation says that food expenditure constitutes about 43% of the total household consumption expenditure. So for a healthy diet combined with other associated requirements for a good life the annual household consumption expenditure should be at least (400/0.43)*365= ₹340000.

Ideally a household should have a savings of 20% and so a decent annual household income is ₹425000.
Therefore, when we as development workers talk of improving the incomes of the people at the bottom of the pyramid and say we have impacted their lives positively we have to benchmark our impact against this desired basic income. To what extent have we been able to ensure this level of income for the beneficiaries on a sustainable basis. So far I have not seen such an analysis anywhere. Instead organisations proudly say that they have increased the incomes by a few thousand rupees or so.
In fact given the kind of low prices that farmers and craftspersons get for their produce and the low wages workers get for their labour, it is doubtful that such a high income as estimated here can be ensured by NGOs through development interventions. Therefore, there is a strong case for the provision by the government of a lifelong universal basic income equal to the statutory minimum wage to all adults funded by a tax on bank deposits and other financial assets. This can be tied to various projects of ecosystem restoration, sustainable farming and craft and renewable energy generation to ensure sustainability in the long run. This will not only solve the problem of low incomes resulting from low productivity and lack of well paying employment opportunities but will also push up both demand and supply in the economy.

Revisiting Machla

 Three decades ago Subhadra Khaperde and I came to Indore from Alirajpur to start rights based work in a new area so as to expand the mass base of the organisation. We stayed on the campus of the Gramodyog Vidyalaya of the Sarvodaya Shikshan Samiti in the village Machla situated about 13 kilometres from the city for about two years. At that time we had very little money so we used to live at subsistence levels initially. We used to go around on a bicycle trying to sell copies of a monthly magazine that we used to publish at the time to eke out some funds. Slowly, we started doing consultancies and then landed a project for organising Bhil Adivasi women to fight for their reproductive health and rights and work got under way in the nearby districts of Dewas and Khargone and today the organisation (https://lnkd.in/dV-nhpBz) has a vast spread across the whole of Western Madhya Pradesh working to make the independence gained 77 years ago more meaningful for the masses who still lead a precarious subsistence existence at the margins. So this campus in Machla has a special place in our hearts.

Some of the shootings for the film on our love story, Rah Sangharsh Ki, episode four in the series Lovestoriyaan on Amazon Prime Video (https://lnkd.in/dKbUsT6C), were shot in Machla and so we had an opportunity to visit it again last year and revive those sweet memories. Ravi Uchhe, one of the cinematographers of the film, has shared a lovely photo of us that he took at that time.

The Adverse Agricultural Terms of Trade

 Globally and in India the big problem is that market prices for farm produce do not cover the costs. Consequently, governments have to subsidise farm production either by direct transfers to farmers or farm input producers or by providing support prices and insurance covers. However, these subsidies are not enough and so farmers are perpetually in the red and have to sell their produce immediately after harvest to pay off debts. This problem is more acute in India as the average landholding and the subsidy given is very low as compared to the high income countries, which are members of the Organisation for Economic Cooperation and Development.

Some amount of relief can be had if farmers can hold their produce for some time to get better prices rather than selling at the time of harvest but this requires both storage space and money which are not available to most farmers. Therefore, theoretically, if a company steps in and provides warehousing facilities to store the produce of farmers and provides cheap credit to them against this collateral, then the farmers can earn more at a later date by selling their produce when prices firm up and still carry on their operations in the interim. However, this is fraught with problems for the intermediary company as there is no guarantee that the prices will firm up enough later to cover the costs of warehousing, weight and pest attack loss and operational expenses. The traders who work in this space generally cheat the farmers by giving them even lower prices than the low ones which prevail in the market and they also provide the inputs to them at higher prices and usurious interest rates and so are able to make profits at the expense of the farmers. Therefore, it is unlikely that any intermediary company can make profits by giving farmers a fair deal.

There are a few agri startups in India which are trying to do this work. However, none of them are making any money because of the inherent constraints detailed above. One such company started off on a small scale by hiring warehouses and providing loans to farmers cheaply against the grains they stored in these warehouses. This boot strapped company worked at a small scale with a small turnover making small losses for a few years before it was funded by venture capital of a small amount of Rs 2 crores and then with a large amount of Rs 40 crores to scale up operations. The turnover shot up tremendously as a result but so did the losses as is evident from the graphics below!!

So, much higher government subsidies and investment are needed not only to shore up the economics of farming currently but also to gradually transition it away from chemical inputs towards natural farming. Unfortunately, the outlay in this year's budget, where it has been claimed that 1 crore farmers are to be transitioned to natural farming is only a paltry Rs 365.64 crores amounting to Rs 365 per farmer, which is less than the daily statutory minimum wage for skilled labour.

Economics of Food Delivery Personnel

 Ishaan Khaperde has studied the economics of food delivery by Zomato India and here are the results from the point of view of the delivery person. The data has been culled from videos shared by delivery boys like the one linked here. The delivery frequency is the least on Mondays and reaches a peak with dinner time on Sundays when it is three times that of Mondays. The base delivery payment for up to five kilometers distance combined for pickup from the restaurant and delivery to the customer is Rs 22 on an average while above five kilometers the delivery person gets Rs 11 per kilometer on an average in addition to the base delivery payment. The pickup plus delivery time is about 30 minutes on an average for short orders of less than 5 kilometers while it is 50 minutes on an average for long orders above 5 kilometers. The daily mix is about 30% short orders and 70 percent long orders with the short orders on an average being 2 kms or so and the long orders being on an average being 9 kms or so. The delivery persons on an average operate for 12 hours. Thus, by solving for these parameters and rounding off [30 x number of short orders + 50 x number of long orders = 12 x 60, number of short orders/(number of short orders+number of long orders)=0.3], assuming that they are continually delivering orders, delivery persons can at the most squeeze in 4 short orders and 12 long orders per each 12 hour day. The payment for this is [4 x 22 + 12 x (22 + 4 x 11)] Rs 880.

The total distance covered on an average is 120 kilometers per day. Assuming a coverage of 40 kms per litre in stop and start city traffic at higher driving speeds this means a petrol consumption of 3 litres at a cost of Rs 330. Add another Rs 50 per day towards two wheeler depreciation, insurance and maintenance cost and the total cost comes to Rs 380. Thus, the net earnings are Rs 500 for a 12 hour day which comes to Rs 333 per eight hour day. Whereas the statutory minimum wage in Madhya Pradesh in urban areas for semi-skilled labour like driving a motor cycle is currently Rs 411 per day. Conversely, assuming double wages for the extra four hours of work done, statutorily the wages for 12 hours of work should be Rs 822 and not Rs 500.
Moreover, the delivery persons face many challenges like having no place to sit in the shade in restaurants, having to climb up the stairs of buildings where there are no lifts or where use of lifts are prohibited to service persons and also face jams and diversions enroute to delivery which further adds to their troubles.
An analysis of the prices charged by Zomato for the food ordered as compared to the prices that the restaurants charge for in dining, shows that there is a mark up of about 10%. So Zomato is not only grossly underpaying its delivery persons but also overcharging its customers 😜.

https://www.youtube.com/watch?v=Q-NDWpzCF1Y

Rationale for Taxation

 A recent paper published by a team of economists led by Thomas Piketty (https://wid.world/.../WorldInequalityLab_WP2024_09_Income...) on the huge rise in inequality in India and their suggestion of taxing the rich to reduce this has led to a huge push back with people saying that it is the rich who create wealth and they should not be penalised through taxation. These people forget that redistribution of incomes through taxation has been a settled principle of all major economies since the 1930s because of very sound reasons. It would be helpful to go through these reasons which are as follows -

1. A modern economy has many enterprises which compete with each other to sell their products in the market and this leads to cutting of costs to stay competitive. Consequently, all enterprises tend to cut both material and labour costs. Cutting of material costs devastates the environment and labour costs are cut by paying low wages. Cutting of labour costs is also achieved by mechanisation which reduces the demand for labour while at the same time increasing the demand for materials, thus further devastating the environment.

2. The low wages of most employees in the economy, with some being unemployed or under employed, results in low effective demand for goods and services. This leads to recession in the economy and markets are flooded with goods and services that do not find buyers resulting in an over production crisis. Simultaneously, the devastation of the ecosystem results in the production of goods and services itself being jeopardised which can be termed as a production crisis. Thus, an unregulated competitive economy will eventually collapse due to an over production crisis combined with a production crisis.

3. This is what happened in 1929 across the USA and Europe and so the modern states thereafter stepped in to regulate the economy. An elaborate system of regulation was put in place to ensure that there is fair competition, wages are just and the ecosystem is not devastated indiscriminately. Moreover, the State in any economy is the biggest spender, not only in buying goods and services and developing infrastructure but also in providing subsidies of various kinds, especially in education, health and welfare, which ensures that the effective demand is kept at a level that counters recession. Apart from this the State maintains law and order and provides external security so that the economy can function smoothly. The state also protects the right to property without which the market cannot function and wealth cannot be accumulated by the rich.

The State has to garner the resources for this necessary regulation of and investment in the economy from taxes. The proportion of taxation in all developed economies currently is 40% of the GDP or more whereas in India it is only 12%. Therefore, the rich need to be taxed much more than they are being at present in India!!

Universal Basic Income

May Day is celebrated in the memory of those valiant workers who gave up their lives fighting for better working conditions and remuneration. Many legal rights were won by workers organised in trade unions in factories. However, from the 1980s developments in computer technology not only made workers redundant in factories but the work could also be outsourced to distant locations. Even in factories apart from a few skilled workers to run the automated machines the rest could be employed through labour contractors. Consequently, the power of trade unions began to decline and both working conditons and wages grew much less than the productivity as most of the surplus was appropriated by the corporations.
Thus, there is very little to celebrate currently on May Day as there aren't permanent factory workers in enough numbers who can agitate for labour rights. The vast numbers of casual workers, a considerable proportion of whom are migrants, are in such a precarious condition that they cannot think of organising for better terms of work.
I am associated with the Khedut Mazdoor Chetna Sangath and the Centre for Labour Research and Action which are fighting for the rights of Adivasi migrant workers in Western India and we are unable to get even the Minimum Wages Act implemented let alone secure other benefits.
The problem is compounded by the fact that outsourcing and underpaying of labour is a global phenomenon and so if one factory or industry pays more to workers then it will become uncompetitive and go out of business. Therefore, it is an economic compulsion for corporations to under pay labour as much as they can. The Governments go along with this so as to prevent the companies from fleeing elsewhere in search of low cost labour. That is why currently all over the world and especially in India there is a lack of decent paid work and it especially affects the youth who are without livelihood options.
So, while it is all very well to come out with demands for the statutory right to work and implementation of protective labour legislation it is unlikely that they are going to be met given this sordid economic reality. Consequently, what is necessary is to launch a campaign for the Government to provide a lifelong universal basic income to all adults. This will considerably ease the distress being suffered not only by casual workers but also farmers and self employed small traders and artisans who together constitute 98% of the workforce. Moreover, by providing money at the bottom of the pyramid this will create huge demand that will revitalise the whole economy. Another benefit will be women's empowerment as paid labour participation of women is abysmally low in this country. This needs to be augmented with investment for ecosytem restoration, sustainable agriculture and distributed generation of electricity so as to counter the threat of climate change which is now the most serious challenge to human civilisation.

Are FPOs viable?

 Can Farmer Producer Organisations ((FPO) increase the incomes of small farmers as policy thinktanks and the government are suggesting?

For answering this we have to first study the economics of the farm sector in the USA. The farm gate prices offered to farmers by the market in the USA do not cover their costs of production. Therefore, the government there gives a subsidy of $20 billion to farmers. Now there are only 250000 actual farm owners left in the USA as small farmers have gradually exited due to the unviability of farming and of these 25000 are big corporations and tycoons like Cargill and Bill Gates who own hundreds of thousands of hectares of farmland. However, even after practising industrialised agriculture with high levels of mechanisation, they are all running in losses as far as farming is concerned, and are compensated to the tune of $20 billion annually by the government through various subsidies.
Not only in the USA but markets worldwide do not remunerate enough to cover the costs of production of farmers and so governments provide hefty subsidies to keep farming afloat. When the likes of Bill Gates and agri-businesses like Cargill can't make profits out of farming it is farcical to expect FPOs to do so without substantial government subsidies. I have tried to get a few FPOs to reveal their audited financials so as to analyse their economic performance but have not succeeded so far 🙂.

Migration

 Today a huge number of Indians are on the move as they are mostly migrating for labour. A conservative estimate based on various government data is that every year 100 million people or about 25% of the workforce are migrating seasonally for labour. In Alirajpur district the proportion is as high as 85% of the workforce. Migration has become a permanent phenomenon of the present form of economic development where agriculture has been severely under funded and industrial development has been predicated on cheap casual labour. To avoid the problems arising from unionisation of local labour employers prefer to employ casual labour brought from other areas by labour contractors. A vast majority of these migrants are poor labourers. Only a miniscule proportion of travellers are high flying executives who are frequent travellers on aeroplanes. Most people travel by train and the Indian Railways issues some 8 billion passenger tickets every year for short to long distance journeys including repeat ones for daily commuters and also less frequent ones for long distance travellers. Understandably, given this huge rush of people travelling all the time the Indian Railways cannot meet the demand. Things have been compounded by the fact that for long distance trains there are many AC and Sleeper Class Compartments which allow travel in relative comfort but on which seats have to be booked well in advance. There are only one or two general compartments in which people can travel without reservation at short notice. Therefore, these compartments are jam packed with some people having to stand and cover long distances of over hundreds of kilometres.

So due to the rush in trains now people have to rely on buses and various other kinds of road transport also which are not only much more expensive but also more accident prone. These modes of road transport too are over crowded as the picture below of a jeep over laden with passengers in Alirajpur shows.
Not surprisingly India has a high road accident fatality rate of 19.9 per 100,000 inhabitants per year which is more than the global average of 18 per 100,000 inhabitants. In terms of accidents per motor vehicles, it is 211.8 per 100,000 motor vehicles per year in India which is significantly more than the global average of 93.3 per 100,000 motor vehicles.

Activate to view larger image,

Carbon Emissions from Agriculture

 An important new painstakingly done research has shown that the emissions from nitrogenous fertilisers is 5% of the total. One third of this is in production and two thirds after application as bacteria act on these fertilisers and release nitrous oxide which has two hundred times more global warming potential than carbon dioxide. These emissions are more than that of shipping and aviation combined.

However, the paper suggests only technical solutions like lesser use of fossil fuels in the production of fertilisers and more efficient use on farms to try and mitigate these emissions which will not achieve much.
The best way to eliminate the use of N fertilisers is to prepare compost and biocultures in situ on farms themselves. However, this is a very labour intensive and time xonsuming process as the equivalent of one bag of N fertilisers is one tractor trolley of compost prepared from mixing and aerating agri and forest biomass with animal dung over four months. Therefore, unless government subsidies are switched from chemical to organic farming to compensate farmers for this extra labour, there is little likelihood of a transition away from N fertilisers.
https://lnkd.in/dgiZenAC

Carbon emissions from fertilisers could be reduced by as much as 80% by 2050

Communitarian Ecosystem Restoration

 Four decades ago in 1983 a few activists from what was then the Social Work and Research Centre and is now the Barefoot College in Tilonia in Rajasthan, came to Alirajpur district in Madhya Pradesh and teamed up with a few Bhil Adivasi activists to form the Khedut Mazdoor Chetna Sangath (KMCS). The mass organisation was set up against heavy odds to fight for socio-economic justice and ecological sustainability in an area which had been devastated by the independent Indian state in pursuit of urban industrial development, making the Adivasis thieves in their own backyard and converting a once proud community into labourers contributing to primitive capitalist accumulation.

Along the way over all these years, the KMCS not only achieved rights to the forests for its Adivasi members but what is even more important it has restored the ecosystem through communitarian collective action. In over 70 villages as much as 13000 hectares of dense forests have been protected and soil and water conservation work has been done in many thousands of hectares. This ecosystem restoration work is of immense importance in the present context when the country is battling the triple crises of climate change, water stress and soil degradation.
This massive communitarian effort has leveraged the traditional labour pooling custom of the Bhils called Dhas and used the political mass strength of the organisation to access MGNREGS funds from time to time. The most crucial factor in saving forests is that the community must have control over their area and be able to regulate natural resource use by preventing both the forest department and outside citizens from exploiting them unsustainably. The members of the KMCS have fought hard to do this and are now masters of their forests.
The best village in this respect is Amba on the banks of the Narmada River where as much as 60% of the land is under forests. Veteran activist of the KMCS, Indersingh, has led this effort in this village along with others. This village is accessible only by foot across steep hills. Yesterday, I relived many earlier trips by accompanying Indersingh to savour the pristine natural beauty of Amba even though the trek proved to be quite strenuous at my advanced age 😊.

Activate to view larger image,