Editorial 1: Latest GDP estimates: Recovery is partial and uneven, scars remain
Recent Context:
- Last week, the government released the Provisional Estimates (PE) of India’s national income for the financial year 2022-23 (or FY23).
- According to the PEs, the size of India’s economy — calculated by the Gross Domestic Product (GDP) or the market value of all final goods and services produced within the country — grew by 7.2 per cent in FY23. This means, India’s GDP was 7.2% more than what it was in the previous financial year (2021-22).
- The latest GDP estimates have surpassed even the most optimistic of projections. They have also prompted many to revise upwards their estimates of economic growth for the ongoing financial year.
- However, beyond the headline numbers, the numbers raise several disconcerting questions.
Concern raised over estimated economic growth:
- First, even as the agricultural sector has registered robust growth, rural demand continues to remain subdued.
- Several FMCG majors have pointed out that rural markets continue to lag as volume growth remains sluggish. While it is possible that with more workers engaged in the farm sector, per capita earnings are being weighed down.
- it is equally plausible that the non-farm sector in rural areas — it accounts for a sizeable share of rural household incomes continues to fare poorly. There are some indications to this effect.
- Work demanded by households under MGNREGA, even though it has fallen below the highs observed during the Covid years, remains well above the pre-pandemic levels.
- This reflects either the absence of more productive forms of employment or the need to supplement the meagre earnings from other jobs.
- Alongside this persisting demand for work under MGNREGA, the subdued growth in rural wages across three major occupations general agricultural and non-agricultural labourers and construction workers also points towards a slack in rural labour markets.
- Second, the industrial sector has slowed down considerably, dragged down by the slow performance of manufacturing.
- While the manufacturing sector did register a turnaround in the fourth quarter it had contracted in both the second and the third quarters growth for the full year was a mere 1.3 per cent.
- As per Periodic labour force surveys. The robust growth registered by the construction sector throughout the year was simply not enough to offset it.
- Alongside, the industrial sector’s share in the urban labour force has fallen from 34 per cent during January-March 2022 to 32.9 per cent during January-March 2023.
- The PLFS data also shows that within the non-farm sector, a larger share is now employed in informal enterprises. The share of workers engaged in proprietary and partnership enterprises (considered as informal sector firms) among those engaged in the non-agricultural sector has gone up from 68.2 per cent in 2017-18 to 71.8 per cent in 2021-22 — an increase of 3.6 percentage points.
- Third, investment activity did register a healthy growth rate in the second half of the year, even as the base effect faded away.
- With this momentum, the investment to GDP ratio touched 29.2 per cent in 2022-23. However, this is only in line with its average level between 2014-15 and 2019-20.
- The disaggregated data shows that when the investment ratio rose from 27.3 per cent in 2020-21 to 28.9 per cent in 2021-22, almost two-thirds of the increase of 1.6 percentage points was driven by the household sector, a little less than a third by the larger public sector, and the balance accounted for by private sector firms
- It is possible that this trend has continued with the public sector, more specifically the central government, and households driving investment activity in the economy.
- Fourth, the toxic combination of low mobility and high inequality
- It has meant that even as spending on high-end goods and services has witnessed robust growth, overall household expenditure has remained low and dragged down by subdued spending of households at the lower and middle parts of the income distribution
- Second half of last financial year, Trade data also shows that merchandise imports (excluding oil, gems and jewellery) grew by a mere 2.2 per cent, also signaling weak domestic demand.
- Therefore, This is an outcome of low income growth, limited opportunities for productive employment, and a steady erosion of purchasing power due to inflation.
- Moreover, the additional household savings accumulated during 2020-21 have been drawn down, and can no longer provide the boost to private demand.
- And alongside this, the gap between real and nominal growth in sectors providing basic necessities such as agriculture (4 per cent vs 12.1 per cent) and utilities (9 per cent vs 33.5 per cent) points to how inflation was constricting household consumption.
Conclusion:
- Thus, while the economy is clawing back from the depths seen during the pandemic, the recovery is partial and uneven.
- The momentum of the underlying drivers of growth is not as strong as many believe. How these contradictions are resolved will have a bearing on the economy’s growth prospects
Editorial 2: Bonn meeting: Taking stock of climate action
Context:
- Countries have been taking measures to respond to climate change since at least the mid-1990s, though it is only in the last decade or so that these actions have become significant enough for any meaningful impact.
- But the global response has never kept pace with the worsening of the climate crisis, whose seriousness has increased rapidly in the last few years.
Bonn Climate Change Conference 2023 In Bonn, Germany, from 5 to 15 June 2023.
- Amidst almost daily reminders of this worsening crisis, negotiators from around the world are currently meeting in the German city of Bonn to discuss ways to strengthen their collective response to climate change. This meeting in Bonn, at the headquarters of the UN Climate Change, happens every year. The work done and decisions taken here feed into the year-ending annual climate change conferences.
- the conference will host a large number of mandated events and continue discussions on issues of critical importance, such as the global stocktake, global goal on adaptation, just transition, loss and damage and the mitigation work programme.
important task under Bonn meeting is Global Stocktake, or GST:
- One of the most important tasks to be accomplished at this year’s Bonn meeting is what is known as Global Stocktake, or GST, a term that is expected to come up frequently in climate change conversations this year.
- This stocktake exercise is expected to result in a significant increase in the global response to climate change, not just in terms of reductions in greenhouse gas emissions, but also in terms of adaptation, provision for finance and availability of technology
- Mandated by the 2015 Paris Agreement, GST is an exercise aimed at assessing the progress being made in the fight against climate change, and deciding ways and means to enhance the global effort to bridge the adequacy gap.
The current situation of The Stocktake and steps need to be taken for its improvement
- The current stocktake, it has been going on for more than a year now and is supposed to conclude this year which is the first such exercise and is mandated by the Paris Agreement to happen every five years hereafter.
- As per scientific evidence that the current set of actions being taken by the world is woefully inadequate to limit the global temperature rise within 1.5 degree Celsius from pre-industrial times.
- The most notable of these is the sixth assessment report of the Intergovernmental Panel on Climate Change (IPCC), published over the last four years. The world needs to cut its emissions by almost half by 2030 from the 2019 levels if it has to retain any realistic chances of achieving the 1.5-degree target.
- At current levels of climate action, the world is headed to a nearly 3-degree Celsius warmer world by 2100.
- But as can be expected, course correction is not a straightforward exercise. Under the Paris Agreement, countries are allowed to decide the level of their contribution to the global effort to contain climate change.
- In effect, every country is free to decide what climate actions it would take. But since the collective effort of every country is now proving inadequate, some amount of imposition seems necessary. And no country is comfortable with that.
The areas of concern under Stocktake: Familiar faultlines
- The GST discussions are fraught with the same troubles as the rest of the climate negotiations is apportioning responsibility for enhanced climate action.
- The faultlines are familiar as rich and developed countries want major emitters like China and India, and others, to do more. Developing countries, mainly China and India, have been reminding the developed countries of their unfulfilled commitments, and continued underperformance.
- The faultlines were evident during the opening meeting of the third and final round of technical discussions. The United States said bridging the gap was not the sole responsibility of the developed countries, and it would not accept any attempt to include such suggestions in the GST decisions
- Climate actions in the pre-2020 period was directed by the Kyoto Protocol, the predecessor to the Paris Agreement. A set of about 40 developed countries, including the United States, had specifically allocated emissions reduction targets, besides other obligations, to be met by 2020.
- These countries collectively, and most of them individually, did not meet the targets. Developing countries argue that the inability of the developed countries to deliver on their commitments was the main reason for the worsening of the climate crisis in recent years, and therefore it was incumbent on the developed countries to scale up their actions now to compensate for their earlier failure.
Responsibilities of developing nation along with developed nation: (India and China stand stand)
- The United States also said that the next round of climate action plans finalised by countries must have emission reduction contributions from all sectors of the economy.
- This was directed at countries like India, whose climate commitments are mainly about increasing renewable energy footprint, improving energy efficiency, and augmenting its forests.
- In particular, India has not committed to restricting methane emissions from agriculture, a sensitive subject not just for itself but throughout the developing world.
- India reacted strongly to the US suggestion and said that India retained its “sovereign right” to determine its climate targets in pursuit of its national goals.
- It also said that it did not accept the suggestions that NDCs must necessarily be economy-wide, covering all sectors or all greenhouse gases (like methane). It aligned itself with other developing countries in reiterating the demand for the closing of pre-2020 gaps.
- The most forceful argument on pre-2020 gaps came from China which said that demands of 134 developing countries had not been captured adequately in GST discussions so far.
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- It said that the pre-2020 gaps were an integral part of the global efforts towards fulfilling the Paris Agreement targets and pointed out that there was now irrefutable scientific evidence to show that a bulk of the carbon dioxide emissions from 1850 to 2018 had been generated before 1990.
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Conclusion:
- There is need for the inclusive plan to combat the climate change under which developed nation should recognized the historical responsibilities for the carbon emission.
- However, developing nations should not stay away their moral responsibilities to counter the climate change under Nationally determined contributions (NDCs). In such a way, a collective action of both developed and developing nations will help in green house gas emission and achieving the path of Paris climate agreement under UNFCC.