India's GDP is growing, did you get an appraisal?
“India will become the third largest economy by 2030”, said a report recently released by S&P Global.
People buzzed about this news right away. While other countries are struggling with inflation and recession, India seems to be heading towards economic greatness.
According to S&P, India is set to grow by 7 percent in the fiscal year 2026-27 and become the third-largest economy by 2030.
They even think it'll be the fastest-growing major economy for the next three years. This made everyone pat themselves on the back, proud of India's economic strength. But hold on, does this really mean everyone's doing well?
Sure, India's making big strides, but what about the regular folks? Are the small businesses growing? Are you seeing a boost in your paycheck?
A fund from Mumbai, Marcellus, looked at the numbers. Turns out, only 20 companies gobbled up 80 percent of the profits made by India in 2022. That's double the share these big shots had a decade ago!
Meanwhile, a survey by the Consortium of Indian Associations found that three-quarters of small business owners weren't turning a profit. And one-third said their business had actually gone downhill in the past five years.
In simple terms, the big guys are swimming in cash while the small fries are struggling to keep afloat.
And you can see this in how we shop too. Online stores run by the bigwigs like Tata and Reliance are where most of us go for clothes, accessories, and household stuff. Fashion, Oil, FMCG—these areas are all dominated by these huge companies.
Economists worry that these mega-corporations, from Mukesh Ambani’s Reliance Industries to the mighty Tata Group, have gotten so big and powerful that it's getting tough for the smaller guys to compete.
Consider this: Tata’s Zudio sells you jeans at Rs. 799 or a T-shirt at Rs. 399. Would you pay more at a local shop? Probably not! These big companies have the upper hand when it comes to prices, thanks to their size and how much they sell.
Dhananjay Sinha, of Systematix in Mumbai, says, "The big companies are getting bigger, and the small ones are losing out because of how tech and size work together."
So, while India's economy is on the rise, it's not all sunshine and rainbows for everyone.
In July, Société Générale analysts discovered that small businesses, those making less than Rs5bn (around $60mn) annually, experienced the "lowest level ever" in market share. Kunal Kundu from SocGen, using central bank data, noted that the part of total sales from small businesses in India dropped to less than 4 percent by the first quarter of the 2023 financial year, down from around 7 percent before 2014.
According to Indian government data, their share of exports fell from 49.4 percent in the 2019-2020 business year to 43.6 percent in 2022-2023. Kundu highlighted that small business revenues have consistently slowed overall.
"India's GDP is growing well, but it's all going to the top. We must correct this," emphasized India’s former Chief Economic Advisor Kaushik Basu, referencing the World Inequality Report 2022, which highlights India's extreme increase in income and wealth inequality.
The number of millionaires in India is expected to double by 2026, and its luxury market is anticipated to triple by 2030. Despite this, consumption and wages in rural markets have remained stagnant in recent years. In simple terms, the poor are earning the same amount as a few years ago and since prices of most things have increased they are reducing their spend of non essential products.
Consumption in India is largely driven by the elite and the rich. This raises concerns about the economic well-being of the majority and emphasizes the need for corrective measures.
The demand inequality in India is quite visible from the data of two sectors.
Let's start with the auto industry.
In the first half of this financial year (April-September or H1FY24), car sales went up by 7%, but motorcycle sales, usually preferred by the lower middle segment, dropped by 1%.
Interestingly, the surge in car sales mainly came from SUVs and cars priced above Rs 10 lakh. Which means the demand in the automobile industry is mainly driven by the upper middle class and rich.
Also, the sales of entry-level hatchback cars, favored by the middle class, took a hit. They fell by a whopping 41% in H1FY24, indicating that the poorer and middle-class folks might be delaying their purchases while the elite and rich are driving the automotive sector's sales.
Another sector spotlighting demand inequality is real estate.
Data from property consultant Anarock revealed a 115% surge in sales of luxury homes priced at Rs 1.5 crore and above in the first nine months of 2023 compared to the same period last year.
Meanwhile, the affordable segment's share (Rs 80 lakh and below) in the housing market dropped to 51% in 2023 from 68% in 2022. Notably, the housing bracket, including units priced at Rs 50 lakh and below, hit a decade-low during January-September 2023, as per Knight Frank India.
The coming decade holds immense promise for India's ascent as an economic powerhouse. But this growth can't solely come from the rich. The income gap between the rich and the poor is widening. The top 10% of earners in India make 20 times more than the bottom 50%. While the top 1% holds 22% of the national income, only 13% rests with the bottom 50%. And it's the top 10% of earners, owning around 57% of the country's income, who seem to be steering demand and consumption.
For India to truly flourish, its growth must extend to the poor and rural areas.
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