Is India Shining Mostly For Its Rich?

India’s billionaires are shining but India is not shining as much, says an analysis by Bloomberg. The spending by the rich in India has been in the highlight, bringing up the question of, ‘Is India Growing Mostly For Its Rich?’ Even though the picture projected of Indian economy is bullish in nature, the growth of consumption in the country is said to be weak despite of the projections, the Bloomberg analysis said.

The 8.4 percent GDP for October- December masked the slowdown in the production side to 6.5 percent and moreover, the consumption level was found weak, at 2.7 percent. The private consumption growth for the whole year, estimated at 3 percent, would be the ‘softest in 20 years outside of the pandemic low,’ said the analysis.

The economists at India Ratings and Research says that consumption is being driven mostly by the households that belong to the upper income bracket, adding that, “therefore, it is not broad-based and recovery in consumption demand on a sustained basis will be a challenge.” So, is only India’s billionaires shining? And not India?

As per the RBI Governor, keeping aside the figures of the last quarter, the GDP projection for the whole year stands at 7.6 percent, could even be closer to 8 percent. Looking at the global backdrop, growth can be seen as fairly resilient, India still remains the fastest growing, big economy in the world.

In the post pandemic period, retrieval has been pulled by manufacturing and construction on the production side, said Pranjul Bhandari, Chief of India and Indonesia economist at HSBC. On the expenditure side, investments over consumption has led the growth story, mainly, from private investments. In the picture, agriculture has not fared well this year. The government has spent well on infrastructure building but the weak investments by the government owned companies have offset the increase in inputs in infrastructure. The private investments in other structures and dwellings has undergone real increase, she added. The recovery has been led broadly by housing and real estate.

The Chief economist at Axis Bank Neelkanth Mishra speaks on similar tones. In the Indian economy, 40 percent of investment is constituted by the households. The physical savings of the households have also gone up. A huge part of these investments is in housing, Mr. Mishra and his team said. For the next few years, they “expect consumption to grow slower than GDP,” by close to two percent points a year.

The explanations are clear, with the pandemic aggravating the inequality in India, notable spending activities are being undertaken by top 15-20 percent households’ income while the informal sector is still fixing the balance sheets. Wage growth is also weak with ample surplus labour available.

Chief economist at ICRA, Aditi Nayar, says that the growth in terms of spending is ‘tepid’ with cautious rural demand due to monsoon conditions being unfavourable and with urban demand too, likely to follow.

Looking at India’s GDP growth by supply and demand components by CEIC HSBC for March, June, September and December 2023, the Indian economy is seemingly stuck in a K-shaped recovery with the government spending effects of trickle down yet to make its presence in a strong manner. Weak levels of consumption, the Bloomberg analysis says cannot be of help to the cause of corporate spending.

The capacity utilisation at factories have bettered to the levels of 2019 but on production capacity, businesses are reluctant to bet big; and unemployment is still a matter of concern. Even with these, Bhandari is hopeful as she sees a mix of other factors, such as the increase in personal loans, imported consumer goods, expenditure on gold which is a valuable and data on services which have shown up strong.

In the long term, there would be more of Global Capability Centres (GCC), which are offshore back offices that extend services such as research, accounting and tech for international companies. They have pushed good paying jobs, which in turn have pushed the demand for larger homes, swankier cars and hi-end appliances, giving way to more GST revenue. The governments production linked incentive schemes are also spurring manufacturing and creation of job opportunities. Consumption growth, Bhandari says, has been underrated and is likely to have a revision soon.

In every economy, some sectors grow and the challenge is to make the growth spread wide, she said. In India’s case, this is yet to happen for India is shinning less than its billionaires, says the Bloomberg analysis.