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Home >Opinion >Views >A post-pandemic crisis of income uncertainty

Indian consumer confidence, as tracked by the Reserve Bank of India, has been abysmal ever since covid broke out. Now the latest findings of the YouGov-Mint-CPR Millennial Survey, conducted by the global pollster in alliance with this newspaper and the Centre for Policy Research, has revealed worrisome self-reported details of what the crisis did to household finances. Carried out in October and November across 203 urban centres, the study’s sample of nearly 10,000 respondents, half of them millennials (aged 24-39) and the rest either younger or older, is fairly representative of a vast cohort that accounts for the bulk of private consumption in the country. More than three-fourths said they experienced financial stress after India’s lockdown, while about half reported having to dip into their savings; about a third said they had to borrow money to meet expenses. As economic theorists expected, precautionary savings rose even as people’s liquidity preference grew more pronounced. Not only did most opt to keep money in easily usable forms (cash and demand deposits), very few said they would spend any windfall gains that came their way. Unless their anxiety eases, which would take a shift in material circumstances for the better, the thrift forced upon urban consumers will likely keep demand dampened in various markets for a prolonged period and thus act as a drag on our economy.

Comprehensive domestic data on income compression in 2020 is unavailable, but reports of corporate wage-bill reduction and a look at the big economic picture corroborate the hard times that our salaried young have fallen upon. While our national output is expected to contract by at least 7.5% in fiscal 2020-21, the profits recorded so far by firms listed on stock markets have been so buoyant that they will almost certainly end the year with bottomline gains. Annual output is also the sum of all profits, wages and indirect taxes in a year. So, if businesses have made more money and GST collections have not fallen too drastically in a shrinkage year, employees on payrolls must have borne the brunt of the crisis. A closer look at added-up corporate numbers would show that toplines have largely been either stagnant or in decline, with higher profits achieved through an expenditure squeeze. Staff costs, in particular, have been reduced across a wide swathe of sectors.

Returns on investment tend to outpace wage growth over long spans of time, as critics of capitalism have pointed out, but 2020 has seen such a sharp divergence in fortunes that policymakers must not overlook this lurch towards inequality. India has always had an income pyramid that tapers sharply at higher echelons; for robust sustainable growth, it needs to flatten progressively, so as to broaden the middle brackets of upwardly-mobile homes, the disposable earnings of which support sales in various markets. With household incomes crunched, that process has gone into reverse this year. Left unaddressed, it could structurally weaken aggregate demand in our economy. Worse, it would raise the risk of India slipping into a ‘middle-income trap’ at some point in the future. Many other countries have found it hard to keep their economies growing rapidly after they escaped poverty. The reasons identified vary, but unevenly distributed riches generated in the early phases of expansion are often to blame. Our policy focus for three decades has been on expanding the country’s economy, as it should be, but it’s clear that distributive aspects of it need attention too.

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