The sales of the SUVs in India are rising while that of the entry-level cars and the two-wheelers are shrinking or going below the pre-Covid levels. Should these recent statistics like this surprise us, still? The government would like citizens to believe that India came out of the Covid exogenous shock in a V-shaped recovery and has become the fastest growing large economy in the world. But the most of the economists outside the government have repeatedly argued that what India experienced has been a K-shaped rebound, and not a recovery.
There are many dimensions to this K-shaped rebound. First, the stock market continued to boom through much of Covid, while the real economy was tanking, clearly benefiting the miniscule minority, who invest in stocks and bonds. A second dimension of the K-shaped rebound was that the profits of the listed companies rose to a 7-year high, while real wages and jobs shrank. A third dimension was that despite the shock, the organized, formal sectors of the economy generally performed well, except for a limited period of time. But the unorganized sector was already reeling from consecutive shocks inflicted by the government by one policy mistake after another – demonetization in November 2016 followed by a poorly designed, badly planned, hurriedly implemented Goods and Services Tax in July 2017. It was then badly hit by the lockdown of the entire economy and the workforce, which came at just four hours’ notice in March 2020, when India still had less than 600 Covid cases. The lockdown was needlessly strict for months.
The unorganized and the MSME sectors have barely recovered from the multiple shocks in succession and that is why joblessness remains at a 50 year high.
A fourth dimension of the K-shaped rebound was that 45 million joined agriculture in 2020, and an additional 7 million were added to the farm workforce in 2021, during the first and second waves of the reverse migration. Even in 2022 (according to the latest Periodic Labour Force Survey 2021-22), the absolute number of workers in agriculture has not fallen. These increases in farm workforce totally reversed a 15 year trend, which saw an absolute decline in farm workforce since 2004, a first in post independence history). At the same time, manufacturing employment has not risen, and has stagnated. So the entire process of structural change that had gathered momentum between 2004 and 2014, when the economy grew at 8% per year, an unprecedented phenomenon in India’s post independence history, has not only been stalled, but has been aborted and reversed.
As joblessness rose, consumption demand has fallen or stagnated. In FY 2022-23, the Second Advance Estimates for the GDP, released in February 2023, suggest that per capita consumption, on average, has risen slightly above the 2019 level. Inevitably, with incomes stagnant, the household savings to GDP ratio has fallen in recent years; people are maintaining consumption by dissaving.
However, there were plenty in the top end of the middle and the upper classes, who, during the Covid-19 pandemic, were not eating out, not travelling, not going on holidays in India or abroad, and hence were saving more. They can now splurge on the SUVs or more expensive cars. Meanwhile, the vast majority of the people remain seriously impacted by joblessness, stagnant wages and consistently high inflation, fuelled by the government taxes on petrol, diesel and cooking gas, which are inputs into both production of goods and services. They have less disposable income leftover to buy such luxuries as motor vehicles, whether two- wheelers or the small cars.
No wonder, the World Inequality Report 2022 called India “a poor and very unequal country”.
(The writer is a Professorial Fellow, Nehru Memorial Museum and Library, New Delhi.)