India’s GDP is projected to rise 7.3 per cent in 2023-24, but private final consumption growth is at just 4.4 per cent. The latter figure — for an economy that, unlike China, has traditionally been consumption-based as opposed to investment-driven — is also corroborated by other data. Hindustan Unilever, the bellwether for India’s fast-moving consumer goods (FMCG) sector, reported a 0.4 per cent year-on-year decline in sales revenue for the October-December 2023 quarter, with a mere 2 per cent underlying volume growth.
Even within FMCG, there is a divergence between the premium-luxury and the price-sensitive mass segments, with the former products continuing to fly off the shelves. Also, the demand fragility seems more in rural than in urban areas. This is reflected in tractor sales falling 4.1 per cent in April-December 2023 over April-December 2022. Two-wheeler sales are up, but will still end the fiscal with numbers way below that of 2017-18 and 2018-19.
At the core of all this are incomes, which aren’t growing enough. The problem, again, is with lower and middle class households, especially in rural areas. Rural wages, according to economists at UBS Securities, increased 5.8 per cent year-on-year in October and November 2023. The growth, in nominal terms without adjusting for inflation, was even lower at 5.3-5.4 per cent for non-agricultural wages. Another indicator is MGNREGA. The flagship rural scheme has generated about 260 crore person-days of employment so far in 2023-24.
With more than two months remaining, the fiscal is set to register the highest ever employment under the scheme after 2020-21 and 2021-22. For an economy that has supposedly fully emerged from the pandemic-induced shocks of those two years, the continued robust demand for MGNREGA work is striking.
If incomes and consumption aren’t rising as much as recorded GDP, it raises obvious questions on the sustainability of India’s current growth story. The Narendra Modi government can rightfully claim credit for its welfare schemes — public provisioning of essential private goods such as LPG and electricity connections, housing, drinking water, toilets and bank accounts — that have helped lift millions out of so-called multidimensional poverty.
But as Ashok Gulati, a columnist with this newspaper, has pointed out, all these measures have no meaning if not accompanied by a reduction in poverty based on income and real wages. Without jobs and incomes, there can be no consumption or savings to fuel growth, investment and poverty reduction on a sustainable basis. With a per capita GDP of hardly $2,500, India’s focus should be on boosting investment, jobs and incomes.
