Santosh Mehrotra 
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.
India’s largest luxury and premium watch retailer, Ethos, which sells Omega, Jaeger-LeCoultre, Panerai, Bvlgari, Longines, Baume & Mercier, Tissot, Raymond Weil, etc, each of them costing lakhs, reported a 44% increase in sales and a 262% rise in net profit in the January-March quarter, the Business Standard reported recently. Similarly, while underwear sales have collapsed (former US Fed chief Alan Greenspan had famously created an underwear growth index because undergarment sales held up even during mild recessions. But when underwear sales start to dip, it is time to worry about the economy) and two-wheeler sales have crashed to 2012 levels, BMW has reported 37% higher sales for its luxury cars in 2022. The World Inequality Report 2022 called India “a poor and very unequal country”.
SUV sales in India are rising while the sales of entry-level cars and two-wheelers are shrinking or are lower than the sales in pre-COVID days. Should recent statistics like these surprise us? While the government would like India’s citizens to believe that the country came out of the exogenous COVID shock in a V-shaped recovery and has become the fastest-growing large economy in the world, most economists outside the government have repeatedly argued that what India experienced has been a K-shaped rebound, not recovery. Could the kind of data cited above be the reason India suddenly became the fifth-largest economy in the world, overtaking the UK?
There are many dimensions to this K-shaped rebound.
First, the stock market continued to boom through much of COVID – while the real economy was tanking – clearly benefiting the minuscule minority who profit from investing in stocks and bonds.
Second, listed-company profits rose to a seven-year high, and real wages and jobs shrank.
Third, despite the shock, the economy generally performed well except for a limited period of time, while the unorganised sector was already reeling from consecutive shocks inflicted by the government with one policy mistake after another (demonetisation, badly planned GST in July 2017 and then a needlessly strict nationwide lockdown of the entire economy and workforce at four hours’ notice in March 2020, when there were less than 600 COVID cases). The unorganised and MSME sectors have barely recovered from the multiple shocks delivered in quick succession. That is why joblessness remains at a 50-year high.
Fourth, a not-so-well-known dimension is that 45 million joined agriculture in 2020 and an additional 7 million in 2021, during the first- and second-wave reverse migrations. Even in 2022, according to the latest Periodic Labour Force Survey 2021-22, the absolute number of workers in agriculture has not fallen. These increases in farm workforce reversed a 15-year trend, which had seen an absolute decline in farm workforce since 2004. At the same time, manufacturing employment has stagnated. So, the entire process of structural change that had gathered momentum between 2004 and 2014 – when the economy grew at 8% a year, an unprecedented phenomenon in India’s post-Independence history – has not only been stalled, but reversed.
As joblessness rose, consumption demand fell or stagnated. In FY 2022-23, the Second Advance Estimates for GDP released in February 2023 suggest, per capita consumption, on average, has risen slightly above the 2019 level. Inevitably, with incomes stagnant, the household savings-to-GDP ratio has fallen in recent years; people are maintaining consumption by dissaving.
However, there were plenty in the top end of the middle class and the upper classes who, during Covid, were not eating out, not travelling, not going on holidays in India or abroad, and hence were saving more. They could now splurge on SUVs or more expensive cars. Meanwhile, most of the population, seriously hit by joblessness, stagnant wages and consistently high inflation – fuelled by government taxes on petrol, diesel and cooking gas – has less disposable income left over to buy such luxuries as motor vehicles, whether two-wheelers or small cars.
Viral Acharya, former deputy governor of the RBI and a professor at the Stern School of Business, New York University, wrote in a recent academic paper that the share of India’s Biggest 5 firms in total assets of the non-financial sectors rose from 10% in 1991 to nearly 18% in 2021, whereas the share of the next Big 5 business groups fell from 18% in 1992 to less than 9% in 2021. This growth has been the biggest in the last decade. “In other words, Big 5 grew not just at the expense of the smallest firms, but also of the next largest firms,” Acharya said.
The Big 5 industrial groups referred to in the paper are Mukesh Ambani-helmed Reliance Group, Tata Group, Aditya Birla Group, Adani Group and Bharti Telecom. He said the growth of such conglomerates raises several concerns, like the risk of crony capitalism, related-party transactions within their byzantine corporate organisation charts and overleveraging due to an implicit too-big-to-fail perception among others.
Santosh Mehrotra is a professorial fellow at Nehru Memorial Museum and Library, New Delhi.