Sustained economic recovery a must to lift the poor

THE growth rate for the second quarter of the 2023-24 financial year has surpassed expectations and brought cheer on the economic front. The recently released data pegged growth for the July-September period at 7.6 per cent, considerably higher than the Reserve Bank of India’s projection of 6.5 per cent. Reports of the improved growth rate came on the heels of the rescue of 41 workers from a tunnel in Uttarakhand. The ordeal of the tunnel workers and the rescue operation involving ‘rathole miners’ have turned the spotlight on the millions of labourers who are at the bottom of the pyramid.

Along with other migrant workers at construction sites across the country, they comprise the backbone of the infrastructure projects that have helped push the growth rate in recent months.

One needs to consider whether they and others in the economically weakest category have benefited from the expansion that seems to indicate a revival after the depressed growth of the pandemic and the impact of external headwinds last year.

A close look at the data for the second quarter shows there was a slight moderation from the 7.8 per cent growth in the first quarter (April to June). But 7.6 per cent remains considerably higher than the 6.1 per cent recorded last year on a year-on-year basis. The main acceleration has come from the manufacturing sector which spurted by 13.9 per cent compared to a negative growth of 3.8 per cent in the last fiscal. Construction and electricity also grew by robust levels of 13.3 and 10.1 per cent, respectively, compared to 5.7 and 6 per cent in the year-ago period.

Agriculture, on the other hand, slowed down to 1.2 per cent compared to 2.5 per cent previously. It is this dichotomy between the rural and urban sectors that has probably contributed to a slower rate of consumption being recorded in the former segment. For instance, two-wheeler purchases have been sluggish in 2022-23 and the first half of 2023-24. This has been largely due to stagnation in sales in rural areas which account for 55 per cent of the market for such vehicles.

In sharp contrast, four-wheeler automobile sales have been booming over the past year. Even in this category, the big spurt in purchases has been of the more expensive utility models while entry-level car sales have been dipping. For instance, market leader Maruti Suzuki recorded a 45 per cent decline in the sales of entry-level cars in November, compared to a 50 per cent rise in the outgo of utility vehicles in the same period last year.

Data on smartphones compiled by the International Data Corporation also showed sales of high-end phones growing more rapidly in the first half of 2023 while there was a fall in the cheapest category compared to last year.

Similarly, there have been reports over the past few months about fast-moving consumer goods (FMCG) companies bringing smaller pack sizes into rural markets to cater to reduced demand. The slow uptake has been highlighted by distributor federations, which are saying that recent months have been dismal for kirana shops (small grocery stores) owing to reduced expenditure in rural and semi-urban areas.

In other words, the trends are similar for many products — premium segments showing a sharp rise and cheaper goods declining or stagnating in terms of sales.

This reflects the global scenario as well. The demand for high-end products is rising worldwide despite continued geopolitical tensions. A study conducted by consulting firm Bain and Company, along with Italian luxury goods manufacturers’ association Altagamma, has estimated there will be 8-10 per cent growth in the luxury market in 2023.

This at a time when inflationary pressures have been growing with higher energy costs throughout the developed world. The gap between the rich and the poor, thus, continues to widen all over the world.

The rising inequity parallels the situation in the domestic economy. On the plus side, the latest data shows an upswing in rural consumption, though it may take a while for the improvement to filter through all regions. Two-wheeler sales, for instance, shot up in November, giving rise to expectations that the declining trend in this segment will finally be reversed. Rural markets showed a rise of 6.4 per cent in consumer goods sales in the second July-September quarter compared to four per cent in the April-June period. This came after four quarters of successive decline, according to retail markets tracker NielsenIQ.

It is thus entirely possible that rural areas will reap the benefits of the faster pace of growth with a lag later in the year. There is no doubt, however, that the poor are finding it much more difficult to recover from the setbacks of the pandemic than the affluent. The contract-intensive segments of trade, hotels, transport and communications, which are big employers, are still moving slower than the rest of the economy at 4.3 per cent in the second quarter.

For those at the bottom of the pyramid, there is a glimmer of hope that the benefits of the higher growth rate in the first half of the year will trickle down in the coming months. At the same time, the slower economic revival in rural areas has clearly been a factor in the recent Assembly elections. Welfare measures promised by various political parties have been a draw, especially in rural and semi-urban areas. In the case of the BJP, it is the gains accruing from existing schemes as well as new measures in states such as Madhya Pradesh that have drawn voters.

Sustained economic recovery, however, is the only way to achieve long-term benefits for the economically weakest in society. Policies that focus on infrastructure development and improving the investment climate, thus, need to be reinforced so that the uptrend in the manufacturing sector continues at the same rapid pace as in the first half of the year.