The mirage of economic recovery | Business Standard Column

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The prospects for the middle class in India are dwindling

Aakar Patel

A word that has been used for several years now is recovery. It is accompanied by the idea that what India is facing economically is a blip, which it will get out of soon. A few facts might help us understand if this is so.

In 2018, India entered the period of what was meant to be its demographic dividend. Two decades or so when more people in the population are of working age than are not. But there are 40 million fewer Indians working today than there were in 2013, though 250 million more people came of working age. The participation rate in the labour force (those who are working or looking for work) is 61 per cent in the United States, more than 65 per cent in China and 72 per cent in Vietnam. In India this is 40 per cent, both according to CMIE and the government’s periodic labour force survey. The rate of unemployment is 5 per cent in the United States, 4 per cent in the United Kingdom and has been consistently over 6 per cent in India since 2017, according to a government survey.

The trend economically is negative. Gross domestic product (GDP) growth fell more or less sequentially across nine quarters beginning January 2018, and this was before the mauling of the last 18 months in the pandemic. India’s middle class appears to have stopped growing. Residential property sales have been stagnant. In the eight major cities, sales have been stuck at around 3 lakh units a year since 2012 (last year it was about half that). India is second from bottom on the Knight Frank Global House Price Index. There has been no growth in the sales of passenger vehicles for 10 years — about 2.7 million units in 2012, 2.7 million in 2015, 2.7 million in 2019 and 2.7 million in 2020, according to the Society of Indian Automobile Manufacturers. The government says this is because of Uber and Ola, but ride-hailing apps have not stopped the growth of passenger vehicle sales in the United States, where they went from about 10 million in 2009, the year Uber was founded, to 17 million. In China, sales doubled from 12 million to 24 million in this same period.

In India, the sales of two-wheelers have been stagnant for six years, with 16 million sold in 2015, then 17 million in 2019, and 15 million in 2020. Something that has not received attention outside of the business dailies is that sales of commercial vehicles have stopped growing, with 6 lakh sold in 2015, then 7 lakh in 2019 and 5 lakh in 2020. Automobiles are about half of India’s manufacturing sector. Because auto sales have stagnated, manufacturing’s share of GDP fell from 16 per cent to 13 per cent after the launch of Make in India in September 2014.

An analysis by the Centre for Economic Data and Analysis in May found that jobs in manufacturing halved from 51 million in 2016 to 28 million today. This aligns with the issue that is highlighted by automobile sales.

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The share of corporate and income tax in government revenue has fallen below that of indirect taxes. This came after corporate tax was cut in 2019, with the rate being 25 per cent and as low as 15 per cent for some firms. The share of net profit (of listed companies) in GDP has risen to 2.69 per cent. Meanwhile, fuel attracts tax of 60 per cent. In effect, India is taking money from its poor and giving it to the wealthy.

The number of poor went up last year by 230 million, according to a study by the Azim Premji University.

The government’s National Family Health Survey of 2019-20 revealed in half the states analysed, child wasting (low weight for age) and child stunting (low height for age), was higher than in 2015. This was before the pandemic. In Assam, Gujarat, Bengal, Karnataka and Maharashtra, the percentage of wasted children was higher in 2019-20 than in 2005-06. The Swachh Bharat campaign was aimed at solving this critical problem.

Since last year, 800 million Indians have been surviving on free food, six kilograms of grain and dal per person per month. Free ration has been extended to November this year and likely will be extended again.

This newspaper has reported that spending on food by Indians declined in 2018 over 2012. This consumer expenditure survey was not released though the chief economic advisor K V Subramanian has recommended that it be made public. India’s GDP per capita fell last year to below that of Bangladesh. It does not look like the difference will be made up this year or anytime soon.

Reports say that 28,000 dollar-millionaires left India after 2014. The poor have nowhere to go. The Mahatma Gandhi Employment Guarantee Act was more than three times the size in 2020-21 (Rs 1.1 trillion ) than it was in 2014 (Rs 32,000 crore). But demand for it is still unmet.

The chief economic advisor says he expects India to grow at more than 7 per cent this decade. The facts do not seem to be aligned with this sentiment, held quite widely in India and promoted by successive governments, that we are on the road to becoming not just developed but a superpower.

It could well be the case that the facts we have noted merely represent an aberration that will be put behind us soon. And that a strong recovery comes that takes us out of where we find ourselves. One hopes that this is so. In that case, we need not worry and things will turn out well. Another option would be to discuss the facts honestly as a nation and chart a more realistic and modest path about what India can achieve over the next 20 years.The writer is Chair of Amnesty International India

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