What we know about India's post-Covid economic recovery and rising inequality

This article is part one Wire'India Black Boxed' series. Read it here: Introduction | Part I

India's largest luxury and premium watch retailer, Ethos, which sells Omega, Jaeger LeCoultre, Panerai, Bvlgari, Longines, Baume & Mercier, Tissot, Raymond Weil, etc., each selling in the millions, saw a 44% increase in sales and a 262. percent rise in net profit in the March quarter. Business standard Recently reported. Similarly, BMW has projected a 37% increase in sales of its luxury cars in 2022, while sales of two-wheelers have slumped in 2012. The World Inequality Report 2022 has named India as the 'poorest and most unequal country'.

SUV sales in India are growing, while sales of entry-level cars and two-wheelers are shrinking or even lower than pre-Covid levels; Should such recent statistics surprise us? While the government wants Indian citizens to believe that India has weathered the Covid external shock in a V-shaped recovery and become the fastest-growing major economy in the world, most economists outside the government have repeatedly argued that India has experienced. A K-shaped regeneration (not recovery). Could this kind of data be behind India suddenly overtaking the UK to become the world's fifth largest economy?

This K-shaped recovery has several dimensions. First, the stock market has continued to boom through much of Covid while the real economy has slumped, clearly benefiting the minority who benefit from investing in stocks and bonds. The second dimension of the K-shaped recovery is that listed company profits rose to a seven-year high, real wages shrank and jobs shrank. The third dimension is that the organized, formal sectors of the economy, except for one period, generally performed well despite the shock, while the unorganized sector was already reeling from a series of shocks caused by one policy blunder by the government (demonetisation, ill-planned Goods and Services Tax in July 2017). , then in March 2020 when there were less than 600 Covid cases, locking down the entire economy and workforce to four hours' notice, unnecessarily severe and national in scope). The unorganized and MSME sectors have not recovered from multiple shocks in a row – which is why unemployment is at a 50-year high.

The fourth dimension of the K-shaped recovery is the lesser-known aspect of the 45 million people joining agriculture in 2020, and an additional seven million people added to the farm workforce in 2021 during the first and second wave of reverse migration. Even in 2022 (as per the latest Periodic Labor Force Survey 2021-22), the absolute number of workers in agriculture has not declined. This increase in farm labor completely reversed a 15-year trend that saw a complete decline in farm labor since 2004, the first in post-independence history). At the same time, manufacturing employment has not risen, and has stagnated. The entire process of structural change that had picked up momentum between 2004 and 2014, when the economy grew at 8% per annum, an unprecedented event in India's post-independence history, not only stalled, it was abandoned and reversed.

read more: What do we really know about India's GDP?

As unemployment rose, consumption demand fell or stagnated. In the 2022-23 fiscal year, second advance estimates for GDP released in February 2023 suggest that per capita consumption rose slightly above the average 2019 level. Inevitably, as incomes stagnate, the ratio of household savings to GDP has fallen in recent years; People maintain consumption by cutting back.

However, there are a lot of middle class and upper class people who can save more and enjoy themselves now during the Covid period without eating out, traveling, vacationing in India or abroad. SUVs or expensive cars. Meanwhile, the majority of the population has been hit hard by unemployment, stagnant wages and persistently high inflation, fueled by government taxes on petrol, diesel and cooking gas. Buy luxury goods like motor vehicles, two wheelers or small cars.

Viral Acharya, a former deputy governor of the Reserve Bank of India and a professor at NYU's Stern School of Business, wrote in a recent academic article that the share of India's five largest companies in the total assets of the non-financial sector has risen from 10%. 1991 to almost 18% in 2021, while the share of the next largest 5 business groups has declined from 18% in 1992 to less than 9%. This growth is the largest in the last decade. „In other words, the Big 5 grew not only at the expense of smaller companies but also at the expense of the next largest companies,” Acharya said.

The Big 5 industrial groups mentioned in the paper are Mukesh Ambani-led Reliance Group, Tata Group, Aditya Birla Group, Adani Group and Bharti Telecom. The growth of such conglomerates raises many concerns – such as the risk of crony capitalism, related party transactions in their byzantine corporate organizational charts, and over-inflated due to an implicit too-big-to-fail mentality.

Professor Santhosh Mehrotra, Nehru Memorial Museum and Library, New Delhi.