Top 20% Driving GDP Growth, the Rest Are Travelling Steerage

Recovery in growth, consumption and employment remains hugely contested as the last quarter GDP numbers for 2022-23 present a somewhat mixed picture. Though the GDP growth for January to March 2022-23 surprised on the upside at 6.1%, niggling worries remain on account of the muted private final consumption growth at 2.8%.

The manufacturing sector value-add showed some signs of recovery after negative growth in the previous two quarters. This revival could be partly because of falling commodity prices globally, say analysts. One will have to see how the manufacturing sector shapes up in this fiscal, given that private consumption demand is yet to show a sustained uptick.

Prime Minister Narendra Modi took credit for the GDP numbers and said it showed the “Indian economy’s resilience in the face of global challenges.” Chief Congress spokesperson Jairam Ramesh argued that the headline GDP number has little meaning because some of the structural weaknesses persist. He said private consumption — the biggest component of the economy — has grown only by a measly 2.8% at constant prices in Q4 and annual manufacturing  growth, the backbone of job creation, has fallen sharply from 11.1% to 1.3% for 2022-23.

A closer look suggests that the services sector (with over 60% weightage in GDP) has powered the 6.1% GDP growth in the Jan-March quarter. The construction sector has grown at 10% and the dominant category of ‘hotel, tourism, trade and restaurants’ at 9.1%. Effectively, the services sector alone would have accounted for over 80% of the overall GDP growth in the last quarter of 2022-23.

Pronab Sen, former chief statistician of India, says that though GDP numbers show some signs of recovery, a very skewed income distribution is also visible, and is most worrying. For instance, Sen asks, if services sector categories like hotel, tourism, trade and restaurants are doing so well, why is overall private consumption so muted? Sen, who has dealt closely with the national statistical system for years, says the big rise in the category probably reflects organised sector growth. The better off may be spending more on tours, travels, hotels and restaurants. But in official statistics, spending in the organised sector is also extrapolated to the unorganised sector, in which incomes and expenditures may actually be very muted.

This might explain why despite high growth in services, overall private consumption is still muted. For instance, rural and semi-rural (rurban) consumption is very muted, going by the sales of two-wheelers and entry-level passenger cars. Scooter, moped and motorcycle sales in 2022-23 are still 25% lower than in 2018-19. At roughly 15.9 million units, two-wheeler sales in 2022-23 are where they were in 2014-15, when the Modi government came to power. These data sets have been brought out by Vivek Kaul in an article in The India Forum which makes the K-shaped recovery look increasingly grotesque.

There is something seriously wrong, indeed inexplicable, about the structure of private consumption demand, going by the pattern of the sales of two-wheelers. A similar pattern is seen for entry-level passenger cars. According to Sen, this clearly shows how the K-shaped recovery in the economy is structurally entrenched ― and so is income inequality.

Effectively, the top 20% are driving the GDP growth via higher incomes and consumption, but the bottom 70-80% are being left out of the much-vaunted India consumption story. They probably have to be content with the ‘labharthi schemes’ designed by the Modi government. Otherwise, how do you explain the fact that the world’s fastest-growing economy is also running the biggest ever free food distribution programme, covering 80% of the population! If this is not a growth paradox, what is?

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