Opinion
This elephant in the Indian economy’s room needs attention: Inequality
Summary
- India’s latest report card on the economy bears optimism on the outlook and also raises a few key points of concern.But there’s a big-picture problem that must not go unattended.While India’s relatively fast GDP growth looks secure, this top-line number masks persistent signs of an uneven recovery.
The first half of 2024-25 is done, the Centre’s report card for the Indian economy over the first five months ended August is out, and, beneath its optimistic timbre, its underlying tone betrays a suppressed sense of apprehension about lingering structural fault-lines.
The report, based on provisional GDP data for the April-June quarter and indications from the next two months, projects India’s GDP growth for the full year at a likely 6.5-7%, broadly aligned with earlier predictions. The upbeat outlook emanates from a couple of sources.
First, the monsoon seems to have delivered good rains, making healthy kharif and rabi harvests likely. This will not only have a dampening effect on elevated food inflation, stabilizing prices and reducing inflationary expectations, but also provide a much-needed leg-up to depressed farm incomes and rural consumption.
Also read: India's K-shaped recovery is not so easily debunked
Another source of inspiration for greater demand overall is the sustained momentum in investment, despite a dip in government capital expenditure on account of elections in the first three months.
The report, to be fair, does enumerate some of the lurking risks, though it conveniently points fingers at global conditions as the likely source of a possible domestic slowdown.
This understanding comes from slower export growth during the first five months in comparison with the previous year, indicating not only weak global demand, but also structural problems with our manufacturing sector, such as uneconomic scales of production, endemic low productivity and a lack of competitive spirit.
The report also views with trepidation the stock market boom globally, fearing that a correction could mean spillover effects for us, but is taciturn about the inflated asset values in the Indian capital market and emergent distortions in the arena of public issues.
It does detect, though, incipient signs of strain in a few sectors of the economy, such as slowing demand for automobiles and fast-moving consumer goods (FMCGs) among urban consumers.
Also read: Debate on India’s K-shaped recovery post-pandemic is flawed: SBI
The report’s paeans to investment demand fail to explain why cement and steel output have dipped in the first four months; Chinese steel imports may have risen, but meet only a fraction of our market demand.
Even after waxing bullish about improved prospects for the farm sector, the report adds that uneven rainfall distribution could lead to some areas reporting lower crop output. But the main problem lies elsewhere.
Oddly, both the government and central bank’s panel for monetary policy seem unable to acknowledge India’s elephant in the room: visible signs of a K-shaped recovery. These manifest themselves through corporate numbers as well as economic variables.
Asymmetric distribution of the dividends of growth is most stark in the real estate market. While some are paying over ₹100 crore for a single Mumbai flat, demand for affordable housing in this city has shrunk, so the inventory of small flats is rising. Many FMCG and two-wheeler companies have overhauled their strategy, pivoting away from mass markets to premium segments.
Also read: Crack the employment paradox to avoid a middle-income trap
Finally, the economic report card’s buoyancy on labour-market conditions fails to dissect depressing results from the latest periodic labour force survey, which has again signalled weakness in employment. While India might be the world’s fastest growing major economy, it’s equally true that the top-line growth number hides more than it reveals.
