In the financial year 2022-23, the Indian economy grew at 7.2%. The growth rate surpassed the advance estimates, leading to euphoria amongst a section of commentators and the entire ruling party. Predictably, it is misplaced and ignores the lack of high inclusive growth. Data reveals that growth continues to be uninspiring and unequal.
Policy blunders had bogged down the Indian economy way before mismanagement of the pandemic pushed it into recession. In 2019-20, the growth rate was 3.9%; since the pandemic, it has averaged 3.3%. A sustained recovery implies a return to the pre-pandemic growth trajectory. The failure to surpass the most modest target of 4% growth must have left the policymakers worried. The cheering and chest-thumping does not hide the fact that the recovery is unsustainable and shaky. As T.N. Ninan observes, the late surge in growth is ironically the result of import demand contraction. Despite a low base, the growth rate continues to falter and may be stuck in the 5-6% range, which cannot ensure upper middle-income status soon.
Irrespective of how tepid growth is, it is usually welcome. Concerns arise when we analyse the distribution of economic gains. Some inequality is inevitable, but it is unconscionable for a small section to corner the gains exclusively.
There was unprecedented wealth creation when poverty was increasing and the middle class shrank. The wealth of billionaires has more than doubled since the pandemic. When economic growth has averaged 3.3%, the exponential growth in billionaire wealth points to a deep malaise that must be carefully scrutinised.
The latest GDP data does not fool the common people. They realise that the numbers do not reflect the reality and hide growing inequality.
The agricultural sector has grown at 4%, a fairly good performance by this government’s standards. Despite that, rural India is distressed. In April and May this year, 2.4 and 3.2 crore households demanded work under MGNREGA, up from 2.3 and 3.1 crore households in the same months last year. MGNREGA wages are significantly lower than the prevailing minimum wage. Yet, the crisis is so large that families still seek work. One reason for the rural crisis is low wage growth. Analysing labour bureau data, Jean Dreze estimates that in 2022-23, real wages have grown by a measly 0.2% for male agricultural labourers.
The construction sector has been the bright star of the economy, growing 10% last year. Here too, wage growth belies the cheery optimism with which GDP data was received and was negative in 2022-23. Agriculture and construction are the two biggest employers. Together with manufacturing, they employ 70% of the workforce. Wage stagnation in these sectors gravely impacts crores of families.
When a workforce faces shrinking incomes, poor prospects and high inflation, it responds by cutting down on discretionary expenditure. This starts a vicious cycle that slows demand. The low manufacturing growth rate of 1.3% attests to the falling demand. From automobiles to clothes, sales are down.
The sale of two-wheelers in FY2023 was less than the units sold in 2014-15. Sales of small entry-level cars have fallen 57% from the peak in 2016-17. Smartphone shipments were down 20% earlier this year. Apparel sales are down by 10-12%. The low growth in manufacturing sector has worsened the job market. The unemployment rate in May was 7.6%. Lakhs of educated, skilled workers have no chance at gainful employment.
To be clear, the growing inequality is not a coincidence but the result of the present government’s policies. The Modi government has systematically discarded welfarism and fully committed itself to the redistribution of wealth from the poor to the rich. Between 2016 and 2021, the poorest 20% lost more than half their income. In the same period, the richest 20% increased their wealth by nearly 40%.
At this point, the economy is shining, but for a very small section. Markets for high-end products are buzzing and the stock market offers handsome returns for those with enough savings. Even this core group is not unaffected by the income concentration. The stratification solidifies as we move upwards. The top 20 profit generators in India now account for 80% of the country’s profits, up from roughly 40% a decade ago. If this trend holds, gradually, the space at the top will only diminish.
A few years ago, a senior Modi government functionary lamented that “too much democracy” was hindering reforms and sought “global champions in the manufacturing sector”. The desire to adopt the South Korean chaebol structure has been all too obvious in recent years. The government has shown great alacrity in transferring public assets to private players, doling out tax breaks, and offering massive incentives. What is missing are actual manufacturing, a rise in exports and job creation. The government may have intended to follow South Korean chaebols; it appears to have birthed a version of the Russian oligarchs.
India has overtaken China as the most populous country. Consistently high and inclusive growth is the only way to ensure prosperity for every Indian. Paltry growth accompanied with high inequality is an occasion to stop chest-thumping and begin soul-searching.
Akash Satyawali is National Coordinator at the Research Department, All India Congress Committee.
This piece was first published on The India Cable – a premium newsletter from The Wire & Galileo Ideas – and has been republished here. To subscribe to The India Cable, click here.