Economists are divided on whether K-shaped recovery, a term used to denote uneven economic recovery, is evident in India or whether the growth in the world’s fifth-largest economy, predicted to expand 7.3% in 2023-24, is broad based.
A recent report by the research arm of India’s largest lender State Bank of India (SBI) has kindled the debate on this form of recovery wherein various segments of the economy recover at different rates. The SBI Research report said that the “oft-repeated conundrum debating a K-shaped recovery post-pandemic seems at best flawed, prejudiced, ill-concocted and fanning interests of select quarters to whom India’s remarkable ascendance, signalling more the renaissance of the new global south, is quite unpalatable”.
However, other economists seem to subscribe to the theory that India is indeed in the throes of a K-shaped recovery. White the pandemic dealt a blow to all sectors in the economy, it was those at the bottom of the income pyramid that were perhaps hit the worst. Experts have argued that as long as this part of the population regains ability to spend, growth cannot be termed even.
According to Madan Sabanvis, chief economist, Bank of Baroda, growth in any economy always tends to be K-shaped where some sectors are moving up and down. Seldom do all sectors of the economy all move in the upward direction and when it happens, it is more when the growth is at a continuously elevated rate of over 8% per annum, he said.
“If we look at the Indian economy there are several sectors moving in the upward direction especially those related to infrastructure like steel, cement, machinery. However, consumer-oriented industries are still lagging as per H1 (first half) performance of companies and similarly the agricultural sector has witnessed a setback due to the monsoon being less than normal,” said Sabnavis.
He explained that excluding the BFSI (banking, financial services and insurance) segment, net sales in the first two quarters of FY24 have declined at the aggregate level and shows production is not going up universally across all segments. “If we dice up this data, then the proposition made earlier that infra-related industries are performing better is evident,” said Sabnavis.
Meanwhile, the first advance estimates of the government showed last week that the Indian economy is expected to grow at 7.3% in FY24, 30 basis points (bps) higher than what the Reserve Bank of India (RBI) forecast in December. A basis point is one-hundredth of a percentage point.
“One aspect that has been discussed a lot is the growth in consumption, which at 4.4% (based on the first advance estimates of FY24) is concerning,” said Rajani Sinha, chief economist, CareEdge.
Sinha said that since the pandemic there have been discussions around consumption growth not being very broad based and the recent estimates reiterate it.
“Very clearly, what we are seeing is that consumption is happening and if you look around us, we are seeing it happen in urban areas. But it looks like rural areas and the lower income categories in the urban areas that are dependent on the informal sector do not seem to have completely recovered from the pandemic shock,” said Sinha.
According to her, this particular segment of the population is still being quite cautious on spending and that is what is critical for consumption to improve. Moreover, while investment growth is propelling economic expansion, investments are largely being driven by the central government and the states.
“While private sector investments have started picking up, they are still being quite cautious. Therefore, it is essential that consumption picks up for the private sector to get that confidence to invest,” said Sinha, adding that she is optimistic about private sector investments in a few more quarters.
