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In his book "The Crisis of Democratic Capitalism," Martin Wolf emphasizes that GDP growth alone does not provide a complete picture of a country's well-being. The distribution of the benefits derived from economic growth is equally important. While India is projected to have high GDP growth rates, examining how equitable this growth is crucial and whether it benefits all sections of society.
Analyzing various economic indicators can help assess the distribution of economic growth. One significant indicator is private consumption expenditure. Domestic two-wheeler sales, such as motorcycles and scooters, have increased, indicating the purchasing power of households in the middle-class category. However, entry-level two-wheeler sales have declined significantly, suggesting financial strain among individuals at the lower end of the income spectrum.
Similarly, domestic car sales have declined for small entry-level cars while high-end SUVs have seen a surge in sales. Smartphone shipments have also decreased, particularly in the rural areas where teledensity remains stagnant. While air travel has recovered to pre-pandemic levels, it is essential to note that a small percentage of the population accounts for a significant portion of flights taken.
Examining the investment sector, the investment-to-GDP ratio has declined, indicating a decrease in job creation and income. Household sector investment, a proxy for small informal businesses, has also been falling, leading to closures and job losses. Private sector investment has followed a similar trend, suggesting a lack of confidence despite positive public statements from CEOs.
Bank loans to industry have decreased over the years, particularly for medium, micro, and small industries. This segment plays a vital role in job creation, and its decline hampers overall economic growth. While public sector banks have improved their lending capacity, the number of new investment projects announced has decreased, indicating a broader slowdown in private sector investment. Additionally, net foreign direct investment in India has stagnated.
Overall, these indicators reveal that certain sections of the population lack the same consumption power they had before the pandemic, while the well-to-do continue to prosper. The economic growth experienced in India is not distributed evenly, and investment in small businesses is declining. These factors highlight the need to address income inequality and stimulate inclusive economic growth.
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