On India’s K-Shaped Recovery – SBI report: K-shaped questions

Source: This post on India’s K-Shaped Recovery has been created based on the article “SBI report: K-shaped questions” published in “Indian Express” on 10^th January 2024.

UPSC Syllabus Topic: GS Paper 3 Indian Economy – Issues relating to Growth.

News: The article discusses the recent report by SBI on India’s K-shaped recovery. It highlights the flaws in the arguments presented in the report.

A new research report by the State Bank of India (SBI) seeks to debunk claims of India’s “K-shaped” economic recovery.

Note: K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes. This contrasts an even, uniform recovery across sectors, industries, or groups of people.

Source: Investopedia.

In the case of India, according to the author, there has been a stark difference in the way different sectors of the economy recovered after the pandemic. While the overall economic growth figures look robust, there is a growing underlying inequality.

What are the SBI report’s arguments against India’s recovery being K-shaped?

1. Positive Emerging Patterns: It highlights patterns of income, savings, consumption, expenditure and policy measures aimed at public welfare.
2. Questions Parameters: It questions the use of old parameters like low two-wheeler sales or fragmented land holdings.
   For instance, low sales of two-wheelers could reflect savings being utilised to buy physical assets (real estate) and buyers shifting to purchasing used/entry-level cars.
3. Rising Disposable Incomes in Non-Metro Areas: It cites data from Zomato as an example of rising disposable income in non-metro areas.
4. Decrease in Inequality: It refers to the income tax data for FY22 to note that the Gini coefficient had declined significantly from 0.472 to 0.402 between FY14 and FY22.
   It highlights that 36.3% of individual tax return filers belonging to the lowest income in FY14 have left the lowest income group and shifted upwards.

Why are the SBI report’s arguments against it flawed?

1. High Welfare Spending indicated Economic distress: The government has been forced to extend the scheme of subsidized food grain to 800 million Indians.
2. Tax Data does not reflect Broader Economy: Only a very small minority of people pay direct income tax. Hence, it is not reasonable to draw conclusions from tax data about broader inequality.
   Income tax data is nominal and is affected by overall inflation, thus making it unviable for drawing conclusions.
3. Use of Tractor Sales Data: Tractor sales (in place of two-wheeler sales) may be a better representative of the farm economy but not the overall rural economy.

Question for practice:

‘India has experienced K-shaped economic recovery in the post-pandemic era’. Analyse.