India’s Growing Inequality and Economic Struggles

Source: The post India’s Growing Inequality and Economic Struggles has been created, based on the article “Our economy seems to have gotten even more K-shaped” published in “Live mint” on 16th January 2025

UPSC Syllabus Topic: GS Paper3- Indian Economy

Context: The article highlights India’s growing economic inequality, with luxury spending rising among the wealthy, while the middle class and small businesses struggle due to inflation, slow wage growth, and policy challenges. It also stresses disparities in education and export competitiveness.

For detailed information on Status of Inequality In India read Article1, Article2

What is India’s K-shaped Economy?

1. India’s K-shaped economy highlights growing inequality. Some sections of society experience rapid wealth and luxury, while others face financial struggles.
2. Luxury watch imports rose 28% in 2023, but fast-moving consumer goods (FMCG) saw sluggish growth due to higher prices.

For detailed information on On India’s K-Shaped Recovery – SBI report read this article here

What are the Challenges faced by India’s Economy?

1. High Tax Burden and Complex Regulations for Small Businesses

• Small businesses struggle due to a high tax burden and complicated regulations.
• Kirana stores’ retail share fell from 33% in 2015-16 to 22% in 2023-24 as quick-commerce platforms gained popularity.
• GST complexities and increased tariffs further harm small exporters.

2. Decline in Labour-Intensive Exports

• Labour-intensive exports driven by SMEs are declining.
• Overvaluation of the rupee reduces global competitiveness.
• Bangladesh’s apparel exports grew 7% to $38 billion in 2024, surpassing Indian exporters.

3. Educational Disparities

• Only 15% of Indian students meet global skill standards, compared to 85% in China (as per Ashoka Mody).
• Lack of skilled workers limits India’s competitiveness in global manufacturing.

How Is the Middle Class Affected?

1. The growth of India’s middle class has been slowing for years, with signs it is shrinking further.
2. Low wage growth and sustained food inflation have reduced disposable incomes, forcing families to prioritize essentials.
3. 90% of urban households spent more on essential items in November, the highest in a decade.
4. Subcompact car sales are declining, with inventory piling up, while SUV sales thrive, reflecting income disparities.
5. Maruti Suzuki chairman R.C. Bhargava highlighted that without growth in the lower market, there will be no feeders into the upper market.

What should be done?

1. There is a need to remove GST on gig workers’ incomes and tax quick-commerce companies heavily.
2. Companies and consumers should share costs for gig workers’ insurance and address environmental issues like excessive plastic waste.

Question for practice:

Examine the challenges and disparities highlighted in India’s K-shaped economy and suggest measures to address them.