Growth Bypasses the Majority of the Population, Particularly In Rural Areas
STORIES, ANALYSES, EXPERT VIEWS
India’s economic growth, celebrated in aggregate terms, hides an uncomfortable truth according to The Statesman. “Much of this progress has bypassed the majority of the population, particularly in rural areas. Despite being one of the world’s largest economies, India ranks poorly in per capita income, a stark reminder that GDP growth alone does not equate to widespread prosperity. This widening economic gap has real implications, most notably in terms of demand ~ the very engine of sustainable growth. Recent analyses point to stagnant rural wages, a persisting issue that has kept the purchasing power of millions at a minimum.”
Surveys show that the average income for a rural earning person is less than Rs 35,000 a year, or about Rs 2,886 per month. Even as the urban middle class begins to feel the strain of stagnant wages, the situation in rural areas is far more concerning. This demand deficit “is now reverberating across the broader economy.”
Modest incomes and consumption: Consumption data reveals that “rural and low-income urban households spend less than Rs 3,000 and Rs 5,000 per capita monthly, respectively, underscoring a sharp divide in consumer power. Even among salaried urban workers, incomes are modest, with casual labourers faring far worse. Without income growth to support rising aspirations, spending power remains subdued, creating a cycle of low demand that impacts businesses and, ultimately, economic growth. India’s challenge, therefore, is not just about growth, but about inclusive growth. Job creation, particularly in rural areas, is essential….”
Reverse shift toward agriculture for many rural workers points to a structural imbalance: A reverse shift toward agriculture for many rural workers according to The Statesman “points to a structural imbalance, where opportunities outside traditional sectors are insufficient to absorb the workforce……true change will come from policies that promote equitable wealth distribution and build an economy where quality jobs are accessible to all. India’s trajectory toward becoming a global economic powerhouse is promising, but it must also address internal inequalities that threaten long-term stability.…..”
The middle-income trap
This malaise if untreated, according to Rathin Roy (distinguished professor, Kautilya School of Public Policy, Hyderabad) “will land India in the middle-income trap into which many countries have fallen.” Roy has previously argued that India faces a structural demand constraint that can only be addressed by producing what the top half (not just the top 15%) of Indians wishes to consume, and by creating employment by producing these things in poor geographies, where those poorer than Bangladesh and Nepal live.
If this does not happen, “then the economic impetus of the prosperity of the top 150 million Indians since 1991 would, ultimately, falter….”
Roy highlights four implications of this faltering economic engine:
“The stock market story is not the India prosperity story
In recent times, the stock market has risen despite an underlying structural slowdown because the share of profits in listed companies as a proportion of total revenue has gone up, while…
- Real wages are stagnant or declining.
- Supplier margins have been squeezed.
- Companies have used tax breaks and incentives to go debt-free.
“Hence, profits are high even though investment is low. This can be expected to continue in the near future, although with more volatility given external shocks…..But the point is that the stock market story is now delinked from the India prosperity story.”
