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Global Hunger Index is riddled with inadequate and poorly described data and a lack of conceptual clarity. The problem with indices of this type is that it directs governmental attention to cross-national comparisons, sometimes resulting in the rejection of underlying issues and sidetracking the public discourse

The world seems to have gone index-happy. Happiness Index, Ease of Doing Business Index, Calmness Index, you name it. The problem with this mini-industry of index creation is that it has the potential to both influence government action and generate aggressive pushback. The experience with the Global Hunger Index provides a salutary lesson in the latter.

Recently, Concern Worldwide released the Global Hunger Index. India ranked 107 out of 123 countries, dropping from the rank of 101 in 2021. The government has responded sharply to the publicity surrounding this, rejecting the methodology employed by the researchers and noting the substantial efforts made by the government to improve access to foodgrains by India’s poor. The rebuttal by the government rests on valid grounds — about a third of the index rests on the Food and Agricultural Organisation’s estimates of the proportion of undernourished in the population. Digging deep, we see that these estimates are based on Gallup World Poll’s survey of 3,000 households in India (and 1,000 households in smaller countries).

In addition to its small size, the Gallup sampling methodology does not follow the usual processes used in India. This suggests a need to evaluate the representativeness of the sample. Unfortunately, we cannot easily do this because the underlying data are located behind a paywall. To ensure transparency, it is essential that international agencies only use data that are freely available in the public domain along with key characteristics such as education, residence and age of the respondents. In this case, the uncritical use of questions is particularly problematic because FAO has not released standard errors for their estimates, making it difficult for us to evaluate whether the growth in the proportion of households experiencing hunger in India, from 14.8 per cent in 2013-15 to 16.3 per cent in 2019-21, is statistically significant. This is very important given the difficulties in collecting data during the pandemic.

However, quibbles about this one indicator obfuscate the larger question: Is this index genuinely measuring hunger, or is it lumping together various indicators with only a weak relationship with hunger? The index rests on four indicators: Proportion of undernourished in the population, under- five mortality rate, prevalence of stunting (low height-for-age) and wasting (low weight-for-height) in children under five. The last three indicators come from the National Family Health Survey for India. Proportion undernourished and child mortality contribute 1/3 each to the index, while stunting and wasting contribute 1/6 each.

How good are these indicators in picking up on hunger? While the first, if well collected, could presumably identify the proportion experiencing hunger, the latter three are only partially related to hunger.

Child mortality depends heavily on a country’s disease climate and public health systems. Today, 40 of 1,000 children in India die before their fifth birthday; 27 of these deaths occur in the first month of life. This suggests that many child deaths are associated with conditions surrounding birth, congenital conditions, or delivery complications. These are not necessarily markers of hunger.

Similarly, the relationship between stunting (low height-for-age), wasting (low weight-for-height), and hunger is not apparent. As UNICEF notes in an article titled ‘Stop Stunting’, poverty is not a clear cause of stunting as there are stunted children even among the wealthiest households. Various factors contribute to stunting, such as infant and child care practices, hygiene, dietary diversity and cultural practices surrounding maternal diet during pregnancy. Food insecurity contributes to child stunting, but its relative importance in determining stunting is not established. Wasting is associated with both recent illnesses and low food intake. The two are closely related; children suffering from diarrhoea are less likely to eat, and poor nutritional status makes them more susceptible to disease.

Thus, while all three indicators of child health are related to poor food intake, none of them is solely determined by hunger. Moreover, trends in all three reflect somewhat different patterns. Between 1998-99 and 2019-21, National Family Health Survey 2 and 5 show that the child mortality rate fell from 95 deaths per thousand to 40 per thousand. This is a significant improvement attributable to improved immunisation coverage and increased hospital delivery. Child stunting decline was also substantial, from 51.5 per cent to 35.5 per cent, possibly due to improved water and sanitation systems. Wasting has not changed, barely budging from 19.5 per cent to 19.3 per cent.

Despite this progress, we need to continue our effort to reduce child mortality and find ways of reducing stunting and wasting. However, whether the reduction in hunger is either necessary or sufficient to improve nutrition remains unclear.

In an intriguing article published in 2009, Angus Deaton and Jean Dreze try to reconcile these puzzles and find that average caloric intake has severe limitations as a nutrition indicator. They argue that “close attention needs to be paid to other aspects of food deprivation, such as the intake of vitamins and minerals, fat consumption, the diversity of the diet, and breastfeeding practices.” My research using data from the India Human Development Survey, organised by the National Council of Applied Economic Research and the University of Maryland, supports this. This study found that holding household incomes constant, with access to the public distribution system, skewed consumption towards cereals, reduced dietary diversity, and failed to improve anthropometric outcomes.

Thus, the Global Hunger Index is riddled with inadequate and poorly described data and a lack of conceptual clarity. The problem with indices of this type is that it directs governmental attention to cross-national comparisons, sometimes resulting in the rejection of underlying issues and sidetracking the public discourse. In a way, this episode illustrates the concern that Amartya Sen, one of the principal consultants to the Human Development Report, 1990, expressed. He has argued that concentrating too much on the Human Development Index or any other index would be a great mistake. The Global Hunger Index is one example in which the weapon has backfired, detracting attention from the very real challenges of improving nutrition and reducing child mortality.

The writer is a professor of Sociology at the University of Maryland and professor and Centre Director of the National Council of Applied Economic Research. Views are personal

The oft-cited 14% of GDP is an overestimate, arrived at by a consulting £rm using a model built for developed countries.

India’s logistics cost is estimated to be around 14 per cent of GDP — a figure that has all of a sudden become cast in stone. High logistics cost, without doubt, impinges on competitiveness.

To address this issue, the Centre recently unveiled the National Logistics Policy (NLP).

The emphasis on water for cargo movement and introduction of Uber-like aggregation model to address the logistic needs of small entrepreneurs will help in the long run.

However, the 14 per cent logistics cost needs to be delved into. It is from a report by consulting from Armstrong & Associates, which routinely estimates logistics costs as a percentage of GDP for many countries. It uses an underlying model for this exercise.

The model is based on observed data of input variables (economy and infrastructure related, which are readily available from the World Bank database) and output (logistics cost as percentage of GDP) variables of select developed countries.

Typically, estimates of output variables of developed countries are available through alternative methods.

So, a model is developed for the control countries, which are basically developed economies.

Once the model is built, the input variables for any country are fed into the model to estimate the logistics cost as a percentage of GDP for the corresponding country.

Modelling structure

In keeping with the tradition of the consulting fraternity, Armstrong & Associates does not put out its modelling structure for others to judge how relevant it is for a developing country like India.

Besides, the elements of the logistics costs are not explicitly stated in the report. This is important, as there is no uniform definition of what should be included in measuring logistics costs.

The cross-country empirical literature talks about 46 elements in logistics costs, some of which are probably not relevant for a developing country like India.

Most of the studies in developing countries have incorporated the following as core elements of logistics cost: transportation, material handling, warehousing, administration, equipment, documentation, insurance, IT hardware and software, logistics system management, marketing, packaging, and maintenance.

Of these, transportation is the single largest cost element comprising 30-50 per cent of the total logistics cost, depending on transport infrastructure and bottlenecks in last-mile connectivity.

India’s official statistics do not report logistics cost, but they do report transportation cost in the computation of Supply Use Table (SUT) of India. According to SUT, which is for 2018-19, the transportation cost amounted to 4.7 per cent of that year’s GDP.

Thus, a back-of-the-envelope calculation leads to single-digit logistics cost for that year if one goes by the official statistics.

The NCAER study of India’s logistics cost comes up with a similar figure, post-introduction of GST.

Double-digit logistics cost in India is an unverified figure. Logistics bodies can use it for their lobbying exercises. From the business planning point, the variability in consignment movement time is more important, which one hopes will reduce with the adoption of the National Logistics Policy.

The writer is Professor, NCAER. Views are personal.

Earlier this year, the United Nations published data to show that India would surpass China as the world’s most populous country by 2023. According to the 2018-19 Economic Survey, India’s demographic dividend will peak around 2041, when the share of the working age population is expected to hit 59%. In this context, does India need a population policy? Poonam Muttreja and Sonalde Desai discuss the question in a conversation moderated by Sreeparna Chakrabarty. Edited excerpts:

The world’s population is expected to hit a peak and then drop by the end of the century. Is this good or bad?

Poonam Muttreja: We need to move from a family planning approach to a family welfare approach. We should be focusing on empowering men and women in being able to make informed choices about their fertility, health and well-being. As fertility drops and lifespans rise globally, the world is ageing at a significant pace. Can increasing automation counteract the negative effects of an ageing population or will an ageing population inevitably end up causing a slowdown in economic growth? We need to look at all of that. We are where we are, so let’s plan for the well-being of our population instead of hiding behind the excuse that we don’t have good schooling or health because there are too many people. That mindset is counterproductive.

Sonalde Desai: It is not about whether the population is large or small; it is about whether it is healthy, skilled and productive. Let me focus on the productive part of it. Thomas Malthus had said as the population grows, productivity will not be able to keep pace with this growth, and we will see famines, higher mortality, wars, etc. Luckily, he proved to be wrong. We need to take a lesson out of this and think about how to make our present population productive. Skills are important, but so is economic planning that ensures good jobs, agricultural productivity, etc.

You had mentioned China. The lesson we can take from China is that making sharp changes in public policy to manage the population ended up having unexpected consequences there. China’s one-child policy led to a sharp reduction in the population growth rate. But now the Chinese have a rapidly rising population of the elderly. China also tried to relax these policies and is now encouraging people to have two or even three children but the men and women are not ready to comply. And China’s fertility continues to decline. So, we should focus not on fertility rate, but on creating a situation in which slow changes in the family size take place in the context of a growing economy.

Can increasing automation effectively counteract the negative economic effects of an ageing population?

Sonalde Desai: Automation makes a big difference to the productivity of individuals, sometimes to the detriment of employment. But in any case, it really is an important contribution of the modern world. However, it doesn’t replace human nature and human touch. For example, I heard that Chinese families are now groaning under the burden of taking care of elderly parents. Automation doesn’t help you take your mother to a doctor or provide the emotional warmth and security that family members provide to each other. So, in that sense, ageing is going to be an issue for us. We need to figure out how to address ageing in the context of changing families and the nature of state support in India and create conditions in which the elderly population can have a healthy and happy life.

Does India possess the institutional capability to tap into its huge youth population? Or will an ageing population turn out to be a liability in the absence of adequate institutional or state capacity?

Poonam Muttreja: Let me first touch upon the elderly population and China. If China hadn’t invested in literacy and good health systems, it would not have been able to lower its fertility rates. In any case, I think we have much to learn from China about what not to do. And especially in the case of the elderly, where the estimates show that 12% of India’s total population by 2025 is going to be the elderly. Every fifth Indian by 2050 will be over the age of 65. So planning for this segment merits equal consideration.

Coming back to the young, we have the capacity to tap into the potential of our youth population. There is a brief window of opportunity, which is only there for the next few decades. We need to invest in adolescent well-being right away, if we want to reap the benefits. Otherwise, our demographic dividend could turn easily into a demographic disaster.

Sonalde Desai: India certainly has the capacity to invest in its youth population. But we don’t recognise the gender dimension of some of these challenges. Fertility decline has tremendous gender implications. What it means is that women have lower burden on them. But it also has a flip side. Ageing is also a gender issue as two-thirds of the elderly are women, because women tend to live longer than men do. Unless we recognise the gender dimension , it will be very difficult for us to tap into these changes. So, what do we need to do? India has done a good job of ensuring educational opportunities to girls. Next, we need to improve employment opportunities for young women and increase the female employment rate. Elderly women need economic and social support networks.

India’s total fertility rate has dropped below the replacement rate of 2.1 births per woman. What could be the economic implications of this declining fertility rate?

Poonam Muttreja: As I said, the numbers are going to be only important if you see them in the right way. Economic policy should be geared towards the skilling and education of our large adolescent population with a special focus on gender, as Sonal said. As we look ahead, addressing the unmet needs of the young people should become a priority. We cannot allow the huge advances we have made in accelerating education, delaying child marriage, addressing sexual and reproductive health needs and building agency be wasted. Special attention must be given to addressing ways in which the pandemic may have affected the lives of our adolescent and youth. If the country does not address the rights and well-being of adolescents immediately, it will set us back by many years.

Sonalde Desai: I think it’s not just the economic implications that we need to think about but also the implications of the political economy. India’s fertility fell below 2.1 births for certain States 10 years ago. In four other States, it’s just declining. So, not only is the fertility falling, the proportion of the population that will be living in various States is also changing. The future of India lies in the youth living in U.P., Bihar, M.P. If we don’t support these States in ensuring that their young people are well educated, poised to enter the labour market and have sufficient skills, they will become an economic liability.

Do we need a population policy?

Poonam Muttreja: India has a very good population policy, which was designed in 2000. And States also have their population policies. We just need to tweak these and add ageing to our population policy focus. But otherwise, the national population policy is the right policy. We keep talking about population as the biggest problem in India, but nobody talks about the poor investments in family planning or about investments in population more broadly.

Sonalde Desai: What we need is a policy that supports reproductive health for individuals. We also need to start focusing on other challenges that go along with enhancing reproductive health, which is not just the provision of family planning services. I also think we need to change our discourse around the population policy. Although we use the term population policy, population control still remains a part of our dialogue. We need to maybe call it a policy that enhances population as resources for India’s development, and change the mindset to focus on ensuring that the population is a happy, healthy, productive. Perhaps it is time to think about getting rid of some of the archaic notions around population control, which continue to persist… you know, people with larger families not being allowed to participate in elections or get maternity leave, and so on.

Poonam Muttreja: Our arguments and discussions have not gone beyond the two-child norm. The two-child norm indicates a coercive approach to primarily one community. And there are too many myths and misconceptions around population issues, which lead to this discourse, which takes away attention from doing all the things Sonal and I suggested through this conversation. We need to move away from the focus on the two-child norm.

Poonam Muttrej is Executive Director, Population Foundation of India; Sonalde Desai is Professor at the National Council of Applied Economic Research

Interview of Dr Mridul Saggar, IEPF Chair Professor at NCAER and former MPC member, with Latha Venkatesh, discussing September CPI inflation data, was aired on CNBC TV18 on Thursday, 13 October 2022. Watch the programme here.

For the full discussion, watch the video

Speaking to CNBC-TV18, Citi India’s Samiran Chakraborty and former MPC member, Mridul Saggar warned that India’s GDP target of 6% next year might have to be revised if the core inflation stays above the desired RBI benchmark and the IIP doesn’t pick up.

India’s consumer price inflation rose to a five-month high of 7.4 percent in September from 7 percent in August. This is the ninth straight month of retail inflation breaching the Reserve Bank of India’s target band. Separately, India’s factory output better known as IIP (Index for Industrial Production) contracted by 0.8 percent in August.

Moreover, the reported inflation data is a little higher than estimates while the industrial growth data is a little lower than expected. Nothing dire here, but this is not a happy combination either.

What is painful is that inflation has been pushed up by food prices rising 8.6 percent with cereals and vegetables rising in double digits. On the industrial side, consumption made a worrisome reading with non-durables contracting by 10 percent in August.

Speaking to CNBC-TV18, Citi India’s Samiran Chakraborty feared that the core inflation reading is getting cemented and this was worrisome and this might impact India’s growth (GDP) target of six percent next year.

“I am more worried that the persistence is there on the core inflation side rather than the headline. The core inflation month-on-month changes are practically getting cemented around 0.5 percent, which is annualised 6 percent core CPI and doesn’t look like that the effect of monetary policy is being felt at all, even on the core inflation number,” he said.

Former member of the Monetary Policy Committee, Mridul Saggar concurred with this and added that the current RBI inflation projections seem realistic.

“There is absolutely no doubt that the growth is slowing down and there is a reason for it to slow down. I mean, we are seeing synchronous monetary policy tightening across the globe, financial conditions are tightening; they have sizably tightened and emerging markets are facing the brunt now. So growth has to slow down,” he said.

Is there a downside risk to India’s growth forecast? Chakroborty doesn’t rule it out.

“The challenge is that the global growth outlook is extremely uncertain now. We are talking in terms of more scenarios rather than having just one forecast for the global outlook; our global economists have put out even a hard-landing scenario possibility where global growth would fall to zero percent as well. Under those circumstances, we might have more downside risks to the India growth forecast,” he explained.

Open economy challenges may haunt policies ahead as spillovers intensify

A common economic sophism is that fiscal policy can prop up growth even when monetary policy is assigned to bringing inflation under control. In the short run, lifting demand amid supply constraints will only fuel inflation and the twin deficits, with a wider fiscal gap feeding into a wider current account deficit (CAD).

The pandemic has already made debt dynamics unsustainable in several economies. IMF research shows that a one percentage point unanticipated contraction fiscal balance reduces the CAD, on average, by 0.8 percentage point of GDP.

With the four large central banks expanding their balance sheets by about 8x since 2007, demand and inflation have returned with a vengeance. Private wealth and inequities have increased on the back of fiscal support and large central bank liquidity. This has accentuated CAD to unsustainable levels in some countries. Careful countervailing policy action is required. Open economy considerations will rule monetary and fiscal policies, going forward.

Fiscal consolidation

Fiscal policy, and not monetary policy, will determine long-term interest rates in the Indian economy. More of fiscal restraint will be needed to avert interest rate shock.

It is time to move back to the 15th Finance Commission’s fiscal consolidation path envisaged under its baseline macroeconomic assessment. It envisages GFD/GDP ratio at 4 per cent by 2025-26. Union Budget 2021-22 had announced the government’s intention to reduce the GFD (gross fiscal deficit) below 4.5 per cent by 2025-26. In this year’s Budget, the government reiterated the resolve to meet this target. However, this target is consistent with the 15th Finance Commissions’ worse-case scenario of slower than assessed recovery path from the pandemic.

Macroeconomic conditions are evolving better than anticipated. The key metric of nominal GDP growth was 19.5 per cent in 2021-22 against the base case projection of 13.5 per cent by the Finance Commission. This year too it will easily exceed the 9.5 per cent growth assumed by the Commission.

The government, however, will not be able to meet even the slow post-pandemic recovery scenario targets unless it packages next year’s Budget with a clear strategy to downsize government. This seems an uphill task given that not even two state-owned banks have been privatised this year. Opposition should support the needed reforms, but if political consensus is elusive, the government that has a clear mandate, must push reforms that are never painless.

Next year’s Budget will set the course for the economy. Given the impending slowdown, the 15th Finance Commission’s base case GFD/GDP ratio of 5 per cent for 2023-24 looks difficult but the government must make sincere efforts to bring the ratio down to 5.5 per cent.Those who think this is big adjustment, may be reminded of how successfully the Euro area did the same. The region ran a general government deficit (net borrowing) of 6 per cent of GDP for two years after the global financial crisis but even with some improvement in growth, it went on massive fiscal consolidation and ran primary surpluses for five years from 2015 onward. This enabled them to expand the fiscal deficit by 6.4 percentage points in 2020 after the pandemic struck. Such is the power of counter-cyclical fiscal consolidation.

Avoid trilemma

The impossible trinity will increasingly haunt macroeconomic policies in the near future. It is just not possible to maintain independent monetary policy, fixed exchange rate and an open capital account. The trilemma needs to be handled with less than corner solutions. Exchange rate can be managed but not pegged to a level. Markets can enter very choppy waters once financial conditions tighten and target Fed Funds rate peaks at about 5 per cent  next year. Fed had last month hiked by 80 basis points (bps) its guidance on its terminal rate. Dot plots could rise further by another 50 bps if inflation remains intransigent.

Investor risk-aversion can magnify financial and business cycles. Recent work from Chicago University (Pflueger and Rinaldi’s, September 2022) shows that investor habit preferences explain the large response to Federal Funds rate surprises. A surprise increase in the short-term interest rate lowers output and consumption relative to habit, thereby raising risk aversion and amplifying the fall in stocks.

We have witnessed substantial global equity and bond market corrections in the first half this year, but the tightening cycle is far from over and very much likely to continue into next year. This could result in substantial tightening of global financial conditions into the next year. House price bubbles may burst in parts of the world soon with correction already underway in the US, China, the UK, Australia, Korea and many other parts of the world. The end of free money can do a lot to deepen fissures in the world of finance. The rising pressures on Credit Suisse are just tips of the iceberg.

We are already witnessing a clustering of volatility in the exchange rate market. While a section of the market has taken the call that the dollar has peaked, from the rate cycle perspective that looks rather hasty. The JPY-USD rate, which had dipped to as low as 131 in the first half of August on expectations of looser Fed policy, fell to almost 145 on Powell’s Jackson Hole speech later that month and is holding there. Japan intervened in the foreign exchange markets for the first time since 1998 but could not do much. Dollar strength can remain the bugbear for EM (emerging market) currencies till the middle of next calendar year and we must bulwark against such outcomes.

Our buffers have come very handy, but we have used a fair chunk of our ammunition early on, whereas exchange rate should best be treated as an automatic stabiliser while leaning against strong volatile movements. The RBI’s early July capital flow measures have done little to stem the tide.

In this milieu, the RBI will do well to encourage corporates to maintain a good hedge ratio. If the going gets worse, one cannot rule out radical measures, like quasi fiscal dollar borrowing (such as Resurgent India Bonds issued by SBI) or taking the oil companies’ demand out of the market.

Meanwhile, the open economy considerations call for continuing with rate hikes for the rest of the fiscal year and then holding them till the expected severe global slowdown starts biting Indian growth. It is best to stay focused on maintaining macro-financial stability and not overly worry about growth at this stage. Such is the nature of policy trade-offs.

(Concluded)

The writer is IEPF Chair Professor at NCAER. He was formerly RBI’s Executive Director and an MPC member. Views are personal.