We’ve known for some time that the Indian economy is out of the woods. But could it be possible that the country’s poor are somehow still stuck in the woods?
Factory output data for February, released on Monday, shows India continuing its trend of robust recovery. But it also shows the economy continuing one divergent trend. We’ve seen fantastic growth in consumer durable goods—cars, refrigerators—with a year-on- year 25.5% growth in April- February. But there has been anaemic movement in non-durables such as home products: they have been stuck at 1.3% for these 10 months.
One explanation for this is that the stimulus—cuts in indirect taxes and low interest rates—makes it easier to buy TV sets but not personal products. Considering that the poor spend a larger portion of income on non-durable goods, and hardly anything on the newest plasma screen, these are indications that the stimulus could have left them behind.
That calls for rolling back the stimulus. The sooner the Indian economy gets back to its secular trend, the sooner growth has a chance of being broad-based.