RBI’s guidance of growth improving in the coming quarters is backed by incrementalism emanating from improved government spending and better agriculture performance. But the fallout of receding global trade impulses could be overwhelming and enduring.

For MHCV manufacturers, the recent contraction in sales could imply that the disproportionate gains in operating profits from selling premium large size trucks will start receding fast as they counter large-size fleet operators running excess capacity.

The fall in the credit-deposit ratio could extend the pressure on margins, reduce return ratios, and increase NPAs, collectively leading to further pressure on valuations.

In real terms, the income of people employed in the formal sector remained stagnant for over a decade and declined during the past 5 years (-0.3% CAGR). The real average income contracted by 0.9% YoY in FY24.

Rising populism may accelerate government spending, especially at the state level, and may result in other fiscal adjustments to uplift real income, particularly in rural areas. But for the moment, falling real household income that captures 78% of GDP will continue to be a drag on the real GDP growth.

The conviction around India being insular to lower global growth and, in a take-off, stage has also mellowed as the RBI sees downside risk to growth from declining corporate profits and reduced government spending.

Far from the enormous increase in employment reported by the RBI's KLEMS data, the situation is of an unprecedented level of disguised unemployment.

It is expected that the excess dividend transfer will enable significant bandwidth for the government to stimulate demand and spending on infrastructure, reducing fiscal deficit, and stimulating private capex. However, these are unrealistic expectations.

The latest household consumer expenditure survey shows a considerable decline in the proportion of food consumption, particularly cereals. Concomitantly, there has also been a rise in the spending on non-essentials. This has been interpreted by many as a progression towards affluence. But is it really the case?

The elevated net indirect taxes continue to impinge on the overall domestic demand, which is already being dragged down by the decline in real household incomes.

Given the contrastingly frail household income situation, the continued slackness in private capex and deceleration in trade, the divergent core and headline real GDP growth are not trivial. 

With changes in the work status of females, predominated by the rise in agri sectors and incomes mainly from self-employment, the rising contribution of females in the labour market epitomises a stressed livelihood rather than a bountiful situation.

Incremental evidence from lagging private capex, declining household savings, and PLFS and NCAER survey showing languid incomes reinforce the K-shaped economic trajectory for India’s households.