THE GIST of Editorial for UPSC Exams : 25 January 2020 (Separating fact from economic fiction (Indian Express))

Separating fact from economic fiction (Indian Express)

Mains Paper 3: Economy
Prelims level : Absolute poverty
Mains level : Economic growth and development


  • Some political economy experts believe that demonetisation is responsible for the 2019 slowdown, while others believe that the GDP data are flawed because it does not adequately capture informal sector activity.


  • It needs to address the confusion that has erupted because of the steep slide in GDP growth in 2019-20.
  • Many commentators have conflated two distinct episodes and are presenting them as one.
  • Their contention is that the recent slowdown has been a permanent fixture of the Indian economy, especially since Modi took over the reins in 2014.
  • Some experts say that India is already back to its pre-liberalisation era of slow economic growth of around 3-5 per cent.
  • Now, couple this with the fact that the Modi government has dumped the NSS consumer expenditure survey for 2017-18.
  • Incidentally, we are in full agreement with the decision to treat the report with the disdain it deserves. But, we are not in agreement with the decision to not release the unit-level data.
  • The unit-level data must be released, if only to document the reality that there is something wrong with the NSS architecture in collecting data.

Is 2019 different from the 2014-2018 period?

  • The nightlights data is available with the Earth Observation Group at the National Oceanic and Atmospheric Administration.
  • It comprises low-light imaging data collected by satellites and filtered to measure the quantity of artificial (human-generated) light in an area.
  • The data enabled us to capture economic activity between 2012 and 2017.
  • Data for the first four months of the first four years (for 2019, data is only available till April) shows an average growth of 12.5 per cent per year; growth for the first two quarters (January to June) between 2014 and 2018 averages 7.1 per cent annually.
  • In the first two quarters of the 2019 calendar year, GDP growth averaged 5.4 per cent, while night lights averaged 5.8 per cent.
  • Both very distinct measures of economic activity suggest that 2019 was a bad year and that the prior years had significantly higher economic activity.
  • Some political economy experts believe that demonetisation is responsible for the 2019 slowdown, while others believe that the GDP data are flawed because it does not adequately capture informal sector activity.
  • The months immediately following demonetisation (November-January) do show an average growth of minus 20 per cent, while over the next 16 months, growth averaged 23 per cent.
  • This strongly indicates that something happened to cause growth to sharply decelerate in late 2018. But, it was not demonetisation or GST.
  • The evidence is supportive of the argument that the ultra-tight monetary policy followed by the Urjit Patel-Viral Acharya duo and the NBFC crisis (exaggerated by tight monetary policy) precipitated our recent growth slowdown.

Was 2017-18 a bad year for economic activity?

  • According to the NSS data, real per capita consumption declined by 3.7 per cent between 2011-12 and 2017-18.
  • This is almost unheard of in most mature economies; even in our worst growth year in recent memory (1991 or 2009) per capita GDP growth declined by 0.5 per cent (1991) or increased by 2.5 per cent (2008).
  • We strongly believe that a misdiagnosis of what happened in 2017-18, or in 2019, can lead to faulty policy prescriptions.
  • As it happens, 2017-18 was a very good year for economic activity.
  • The night lights data consistently find 2017-18 to be the best year for economic activity in the last seven years.
  • Rice, wheat and cereal production (accounting for about 8 per cent of the consumption basket in 2011-12) shows an average per capita annual decline of 0.02 per cent between 2011-2017.
  • But, per capita consumption of meat, eggs, pulses, edible oils, and even turmeric shows a healthy increase between 2011 and 2017.
  • The food and tobacco consumption components — these account for 42 per cent of the consumption basket — show an annual real per capita increase of 2.6 per cent over 2011-12.


  • The analysis has implications for poverty analysis and for the analysis of policies that the Modi government has followed.
  • The conservative estimate is that absolute poverty in 2017-18 was in the low to mid-single digits — a decline of 6-8 percentage points from the 14 per cent level in 2011-12.
  • This is indeed a happy note as we celebrate 70 years of the creation of the Indian Republic.

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Prelims Questions:

Q.1) With reference to the K-4 missile, consider the following statements:
1. It is one of the two underwater missiles that were being developed by DRDO.
2. The range of K-4 missile is 750km.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: A
Mains Questions:
Q.1) What do you mean by the absolute poverty? How it can be measured?