Unequal Benefit -Sonal Khetarpal
While the organised sector turned a corner, the unorganised sector continues to lag, accounting for the K-shaped growth
IT IS BY NOW CLEAR THAT, AMONG LARGE ECONOMIES, India is the lone bright spot. However, many economists believe the country’s recovery post-Covid is K-shaped—where growth in the demand of premium goods, driven by higher spending by the affluent segment of society, far outstrips the demand for the mass market goods. The government rejects this view, as do some experts.
This dichotomy is evident in the Index of Industrial Production (IIP), which measures growth rates of various industrial sectors. It has increased from 3.3 per cent in FY14 to 5.9 per cent in FY24 (till Jan.), primarily driven by growth in infrastructure, steel and cement spurred by government spending. However, consumerled industries such as consumer durables and non-durables (food, apparel, groceries etc.) are seeing low or even negative growth. Premium product categories in automobile, real estate, apparel, consumer
The unorganised sector still has not reached the pre-pandemic level of business, operating at a phased-down level. Hence, employment remains low, impacting earnings and rural demand
—SUNIL KUMAR SINHA, Senior Director, India Ratings & Research
durables are growing much faster, whereas mass segment products—a much larger market—are either stagnant or are de-growing. Auto sector sales mirror this trend, with sales of compact cars such as hatchbacks experiencing a 42 per cent decline, and sub-Rs 20 lakh SUVs seeing a 25 per cent surge in sales.
Sunil Kumar Sinha, senior director of India Ratings & Research, attributes this to the formal sector making a healthy recovery post-Covid from the repeated blows of demonetisation, introduction of GST, and then the pandemic, and the unorganised sector unable to do so. An analysis by the rating agency shows that wages for corporates, representing the top 50 per cent of the income bracket, increased by over 10 per cent in the past two years–by 11.6 per cent in FY22 and by 10.7 per cent in FY23. However, lower income brackets, comprising of agricultural rural workers and unskilled workers in urban areas, witnessed negative or no-wage growth. Minimum wage for unskilled workers in urban areas reduced by 3 per cent in FY22 and by 0.55 per cent in FY23, whereas agricultural income, a proxy for rural wages, reduced by 3.4 per cent in FY22 and grew by just 1 per cent in FY23. This duality in the Indian economy will increase inequality and imperil sustainable growth in the near future. ■