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With a Rising GDP, but Slow Consumption and Low Savings, Is India’s Workforce Thriving or Surviving?

Amidst rising unemployment, unpaid labour, low-quality jobs, and a declining labour participation rate, a broader examination is needed to address these pressing issues. However, a lack of data also hampers the measurement of how an economy consumes and saves.
If FMCG sales are sluggish, household savings are declining, and borrowing levels are soaring, it may suggest that workers are facing challenges in sustaining their living standards and may be merely surviving rather than thriving. Credit: Unsplash

Ahead of the Lok Sabha election, the crisis of unemployment unites India as few things do. Why are important sections of India out of work? How do unemployed Indians live? Why is the work available not enough to earn a livelihood? How do Indians secure employment? How long is the wait? With India out of work, The Wire unveils a series that explores one of the most important poll issues of our time.

New Delhi: Several economic indicators reveal a narrative at odds with the government’s portrayal of economic prosperity.

Data on vehicle sales, dwindling consumption demand, high borrowings, diminishing savings, and declining rural demand, among other variables, each unfurl a distinct facet of an economy struggling beneath the surface.

Added to that, rising unemployment, unpaid labour, low-quality jobs, a declining labour participation rate calls for a broader examination that is needed to address these pressing issues.

India’s GDP is growing and it’s set to become the world’s third-largest economy. However, big FMCG companies raise concerns over a persistent slowdown of rural demand. All this is compounded by a historic decline in savings.

Illustration: Pariplab Chakraborty. Photo: Intifada P. Basheer and Azam Abbas

Using Sales Pulse data compiled by HowIndiaLives, The Wire delves into an analysis of how Indians are managing to sustain themselves with their current jobs, rather than thriving under the government’s ‘Viksit Bharat’ initiative.

For instance, if FMCG sales are sluggish, household savings are declining, and borrowing levels are soaring, it may suggest that workers are facing challenges in sustaining their living standards and may be merely surviving rather than thriving.

In addition, a lack of data also hampers the measurement of how an economy consumes.

“The trouble is we haven’t had a consumption survey. There was a consumption survey for 2017-18, but the government ditched that one because they didn’t like the results. A leaked version of that survey showed that rural consumption had actually fallen over that six-year period, from 2011-12 to 2017-18. And since then they have not had a consumption survey. They’re supposed to be doing one now, but we’ll not get those results for at least another year,” renowned development economist Jayati Ghosh said, while speaking with The Wire on whether Indian workers are thriving with the growing GDP or merely surviving.

“And why would you not do a consumption survey? Because those surveys tell us how many poor people are there are in the country, where they are, what they do; they [these surveys] tell us about distribution, because these give us some indication of who can consume what,” she added.

“The other survey which is [also] a better indicator is the labour force survey. The government has allowed that survey to continue, but I don’t know how long they will, because that has also not shown good results,” she further said. “That [The labour force survey] shows us that real wages are more or less stagnating.”

“Note that these are average real wages and these can get distorted at the upper end, and make it look higher.”

“So, if we really want to know how workers are doing, we should be looking at the median wages,” she said, adding that’s what many countries do. “They look at the median wages. That is, the middle of the distribution.”

“Since the average wages are stagnating, it’s quite possible that the median wages have actually come down in real terms. Some people are actually working on this data,” she said.

Note that the average can be skewed by outliers, especially if there are significant income disparities within the population.

Also read: Unpaid Labour on the Rise, Muslims Not Looking for Work: What the PLFS Data Reveals

There are two interesting sets of data – vehicle registrations and provident fund distribution by large, medium and small firms – that could give a glimpse of the economic well-being of the workers.

The data used to create the charts below is as of February 2023.

Fluctuations in two-wheelers, steady growth in hybrid and electric vehicles

Vehicle registrations are also considered a proxy for retail sales.

Two-wheeler sales data are often considered a key indicator of consumption demand, especially in countries like India where they are a popular mode of transportation. They indicate the purchasing capacity of the middle class.

The data shows that during the COVID-19 lockdown, registrations of two-wheelers dropped to 161,314 units in May 2020 and kept fluctuating until January 2023. They appear to have been recovering since then.

As on September 30, 2023, they stood at 1.31 million units, higher than 1.16 million units in the same period in 2019.

It clearly reaches its peak in the month of November every year.

What is noteworthy here is the intensity of the dip during the pandemic and the fluctuations thereafter.

In contrast, take a look at the registrations of hybrid vehicles within the renewable category and electric vehicles.

Vehicle registrations in the renewable category (see below) show a steady rise. As earlier mentioned, this category includes hybrid vehicles.

Note that hybrid vehicles tend to be more expensive as compared to their conventional counterparts. Hybrid cars also require more maintenance than the conventional ones. Therefore, the question is, how many people from the middle class and lower-middle class can afford buying hybrid models of cars?

“In fact, luxury cars are also doing well and not just the EVs. EVs are definitely expensive. And so are hybrid [vehicles]. They are all much more [expensive] than the regular [vehicles]. But all luxury vehicles are doing well. So, that tells you exactly who’s gaining from all this growth,” Ghosh said.

News agency IANS, citing a report by Cyber Media Research, said that India saw a 120% growth in the second quarter of 2023, driven by a 400% surge in hybrid vehicles.

Interestingly, in the chart below, registrations of electric (battery operated) vehicles peaked when the COVID-19 lockdown had started. After the pandemic, the demand has consistently risen. Their adoption, especially at a time when over 120 million people in India lost their jobs, may indicate stark economic disparities in the country.

Note than EV sales have been revving up despite concerns over a lack of charging stations and policy roadblocks. But again, which segment of the population buys EVs and hybrid vehicles?

Meanwhile, the remarkable surge in luxury cars shows that the purchasing power of these buyers has grown exponentially, and they are not hesitating to spend Rs 50 lakh to Rs 1 crore, according to The Hindu’s State of The Economy podcast on the luxury car market growth.

Rural demand weakness in FMCG sector

Separately, fast-moving consumer goods (FMCG) sales serve as a crucial indicator of consumption demand in an economy. These include sales of items such as toothpaste, biscuits, detergents, dairy products, personal care products, etc.

Changes observed in FMCG sales can be attributed to changes in economic conditions, such as fluctuations in income levels, employment rates, and inflation.

Mint reported that rural demand weakness dragged FMCG companies’ revenue growth in the October-December quarter of financial year 2024. Volume growth remained muted for hair oil, health and food drinks, and beauty and personal care segments.

According to NielsenIQ, the FMCG sector is expected to grow at 4.5-6.5% in 2024, sharply lower than the robust 9.3% growth experienced in 2023 and 8.4% in 2022.

Business Standard had reported in November that persistent low demand in the FMCG sector is causing supply chain congestion, leading to an increase in inventory days, with stocks accumulating at distributors.

Moreover, big companies such as Hindustan Unilever and Dabur have also said that the rural markets are lagging urban. Many have even raised doubts about a revival in rural demand, according to Mint.

Medium-sized firms saw sharp decline in PF contributions

Provident Fund (PF) contributions by large, medium and small firms reflect how people save in an economy. It could also be an indicator of social security within an economy.

This data is a good indicator on how workers are doing in an economy. “Even when you register, let’s say, for the EPF, you may not be able to do anything with monthly payment, especially when you change jobs. [Many time] workers don’t even know [they have an EPF], and it gets dropped from their pay when they join another firm, and they don’t even know that it’s portable. They don’t necessarily carry it with them. So, they actually lose. It’s like a tax on their wage rather than actually savings,” Ghosh said.

“Secondly, they’re not doing the surveys that they should be. There was an all-India Debt and Investment survey, which was due, which would give us an idea about household savings. And how much dissavings happens at the lower level. So, they [the government] are not collecting the important data that wold give us this information,” she said.

“But, what you’ve just described in terms of the PF of the large firms versus the others [medium and small firms], it speaks very much of the broader picture that is coming out of corporate profitability,” she added.

The professor pointed out a report which said that 90% of the corporate profit in India was made by the top few firms.

“The top 20 profit generators in India (“the Leviathans”) now account for 90% of the country’s corporate profits. Beyond dominating the country’s profit pool, the Leviathans also reinvest these profits far more efficiently back into their businesses,” Marcellus Investment Managers said in May 2020.

“There’s reduced profitability, and in some cases, negative profitability. And we know that there’s a lot of churning in the small and micro enterprises. Some are closing down and then people start something else,” she further said.

In the three charts below, it is evident that PF contributions by all firms experienced a significant decline during the COVID-19 pandemic. The most pronounced fall, as illustrated by the curve, occurred in medium-sized firms, whereas the drop in PF contributions from large firms appears less steep.

While these graphs are consistent for both small and medium firms, PF amounts paid by large firms show a sharp increase in 2022. They seem to have increased consistently until February 2023, till when the data is available.


Persistent decline in small firm workforce

The three charts below represent the number of employees in small, medium and large firms of all sectors, including manufacturing, services, agriculture and trading.

While large firms have increased their workforce, after a sharp dip in 2020, small firms have borne the major brunt of the pandemic. The workforce in small firms declined sharply twice, in 2020 and in 2021, and it has been falling since the last year.

Note that fluctuations in the workforce size can impact PF contributions by firms.

An increase in the workforce generally leads to higher PF contributions by firms. Conversely, a decrease in the workforce leads to a reduction in PF contributions by firms, as they employ fewer people.

A decrease in workforce size can signify challenges in the economy, such as unemployment, reduced consumer demand, and lower savings rates among workers.

As per the Reserve Bank of India data, Indians have been saving less and borrowing more to spend. Household savings hit a 47-year low in the financial year 2023. In addition, annual financial liabilities of households have risen sharply in FY23.

This indicates that households have been largely borrowing to fulfil their consumption needs.

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