India’s ‘K’ shaped recovery thesis flawed, prejudiced: SBI

State Bank of India, in a research report today, said the talks about ‘K’ shaped recovery in the Indian economy post-pandemic is “flawed”, “prejudiced” and “ill-concocted”. The report went on to say the oft repeated conundrum debating the K–shaped recovery is fanning the interests of select quarters to whom the country’s remarkable ascendance is unpalatable.

“The oft repeated conundrum debating a K-shaped recovery post-pandemic seems at best flawed, prejudiced, ill-concocted and fanning interests of select quarters to whom India’s remarkable ascendance, signaling more the renaissance of the new global south, is quite unpalatable,” SBI Research said in a report today. ‘K’ shaped recovery is when the economy faces a two-paced recovery post a downturn in which while certain segments soar, others witness a decline.

In its report, SBI points out that the patterns emanating from the income, savings, consumption, expenditure, food security, DBT and schemes like Ayushman Bharat and Awas Yojana, among others, question the efficacy of using the ages-old proxies like low two-wheeler sales or fragmented land holdings to support some pre-destined narratives of India not doing well. The report tried to drive home the point that two wheeler sales may not be a valid indicator as sales trends indicate the households diverting to physical assets.

Questions two-wheelers sales as indicator

“For example, two-wheelers sales, a proxy often taken at face value to gauge the soundness of rural and semi-urban households had their stellar performance in FY’19, clocking volumes of 2.12 crore units, ironically in a year when agri GDP slouched at 2.1% and rainfall deficiency spiked to 14%. In current fiscal, the total sales could touch 1.80 crores,” it said.

“More importantly post-pandemic, the sales figures could reflect households reconfiguring their savings towards physical assets (real estate) and a not too small buyers percentage shifting to used/entry-level cars (substitution effect). Tractor sales, another rural resilience indicator, have been quite gung-ho recently,” it added.

“There has been inter-group and intra-group transitions happening in two-wheeler and four-wheeler segments. In the Inter-group transition, people are buying expensive motorcycles and cars than what they have bought earlier. Under the Intra-group transition, two wheelers are being considered as giffen goods with the rise of income and people are substituting two wheelers for the four wheelers,” said the report.

Non–metros a growth engine for food delivery apps

The research report uses yet another interesting parameter to gauge the consumption/demand patterns – food delivery apps making inroads into the non metro areas. “An interesting example of rising prowess of hinterland prosperity and disposable income could be taken from food delivery platforms which have found their next engines of growth in non-metro areas,” the report said.

“We estimate almost 2 crore family members (assuming 4 family members per 0.44 crore active users) are actively using Zomato from purely semi-urban areas, sharing not only meals but also happiness and tranquil times, befitting rich Indian heritage and culture of sharing & keeping family FIRST!,” the report said.

The SBI Research report also pointed out that the Gini coefficient estimated using ITR data of taxable income of individuals shows that individual income inequality has significantly declined from 0.472 to 0.402 during FY14-FY22. Gini coefficient is a tool for inequality via measure of the degree of variation in different sets of values.

“The decline in income inequality is because of a Great Migration at the bottom of the pyramid; 36.3% of individual ITR filers belonging to lowest income in FY14 have left the lowest income group and shifted upwards resulting in 21.1% more income for such individuals during FY14-FY21,” the report said.

"The income disparity of people earning less than Rs 3.5 lakhs have declined from 31.8% to 15.8% during FY14-FY21, signifying share of this income group in total income in comparison to their population has been increased by 16%,” it added.

“Top 2.5% of taxpayer's contribution in income has declined from 2.81% to 2.28% during FY14-FY21. There is a palpable change in income pattern of MSMEs too, reflecting the changing contours of industry/services as formalization drives brings more entities into the net. Around 19.5% of majorly micro sized firms have been able to shift their income upwards, to classify them into small, medium and large sized firms. Out of these, 4.8% firms have transitioned themselves into small firms, around 6.1% firms transitioned into medium sized firms, and around 9.3% firms are transitioned into large sized firms,” said the report.