India’s ‘Misery Index’ Is On The Rise
Sugarcane farmers wait to unload their crop outside the Modi Sugar Mills Ltd. sugar factory and distillary in Modinagar, Uttar Pradesh, India, on Wednesday, Nov. 9, 2016. Photographer: Anindito Mukherjee/Bloomberg

India’s ‘Misery Index’ Is On The Rise

Growth has slowed, unemployment is high, inflation has started to rise and borrowing costs haven’t fallen all that much. All put together, India’s ‘misery index’ is on the rise, reaching levels not seen since at least the second quarter of FY17.

The ‘Misery Index’ was constructed by economist Arthur Okun in the 1960s, to provide a snapshot of the state of the American economy. At the time, the index was created as just a sum of annual inflation and unemployment. Since then, it has been modified by other economists. A popularly used version by Steve Hanke computes the index using the percentage change in real GDP per capita, along with inflation, unemployment and lending rates. Hanke has extended this index to countries other than the U.S. and puts out an annual list with relative rankings of 95 countries for whom data is available.

BloombergQuint constructed a quarterly index along the lines of Hanke’s annual misery index, using real GDP per capita, retail inflation, the median marginal cost of lending rate and the unemployment rates computed by the Centre For Monitoring Indian Economy. The index offers a snapshot of macroeconomic conditions which most affect the common man. A higher index value denotes higher ‘misery’.

The data shows that the ‘misery index’ has been rising since the second quarter of FY18. As of the second quarter of FY20, when GDP growth fell to a six-year low of 4.5 percent and retail food inflation started to rise, the ‘misery index’ was at its highest in three years.

As quarterly data can be noisy and volatile, the index is traditionally calculated on an annual basis. However, any quantitative indicator that you look at is currently looking down, said N R Bhanumurthy, professor at the National Institute of Public Finance and Policy. As a result, qualitative indicators are also bound to have deteriorated, indicating that the ease of living is also likely to have fallen, he said.

Lower GDP growth means reduced incomes or income growth, weaker consumption and employment, explained R. Nagraj, professor at the Indira Gandhi Institute of Development Research. This would eventually mean a decline in welfare, Nagraj added.

WATCH | Misery Index on the rise since the second quarter of FY18.

In the first half of the year, retail inflation stood at 3.3 percent and is seen rising to 5.1-4.7 percent in the second half. Growth in the first half of the year stood at 4.75 percent. The Reserve Bank of India’s 5 percent growth estimate for FY20 suggests a modest pick-up in the second half. The CMIE’s unemployment rate stood at 6.86 percent in January and rose to 8.45 percent in October. It moderated to 7.48 percent in November.

Commenting on the individual components, Nagraj said that retail inflation is expected to come down in a few months when the new crop arrives in the market. It is largely being driven by a rise in prices of select vegetables due to the impact of unseasonal rainfall. The high borrowing costs may not be as much of a problem at this stage due to the lack of demand for credit, Nagraj said.

As for unemployment, the CMIE data, on a monthly basis, seems to suggest deterioration in the unemployment situation, he said. Even as per government data, the unemployment rate has risen from 3 percent in 2011-12, to 8.8 per cent in 2017-18.

When computed annually, India’s ‘misery index’ shows a rise in FY17, the year of demonetisation. It fell the following year but rose once again in FY19. Early trends for all four indicators used to compute the index suggest that misery would have risen further in FY20, due to lower real GDP per capita, higher unemployment and rising inflation.

On Hanke’s version of the index, where the most miserable country occupies the highest ranking, India moved from a rank of 22 in 2013 to 44 in 2018 out of 95. The Hanke index is a relative ranking across the set of countries chosen.

Is The Misery Index In Sync With Other Indicators?

While there is no official version of the ‘misery index’ in India, the central bank’s survey on consumer confidence also fell to the lowest since at least March 2014.

Consumer confidence weakened further in November to 85.7 whereas the future expectations index, while still positive, declined to 114.5.

Components of the survey showed that current perception of the economic situation, employment and income deteriorated. However, one year ahead expectations remained in the optimistic terrain for all parameters, except prices, the RBI said in its release accompanying the survey.

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