Weak recovery leaves India’s middle class anxious and frugal
By Karan Deep Singh
NEW DELHI — India’s economy is limping back to life, and its wealthy consumers are finally returning to its malls and stores.
But at Electronics Desire, where the aisles are empty and the sales are slow, the lingering fears of India’s middle class — and the millions who aspire to join them someday — are on full display.
An appliances shop in Ramphal Chowk, a middle-class neighbourhood in the New Delhi suburb of Dwarka, Electronics Desire is struggling through its weakest sales in months. Even last year, when a coronavirus lockdown at one point brought the economy to a virtual standstill, sales were better, said Tejendar Singh, the manager.
“Around this time last year we sold 15 to 20 dishwashers,” said Singh, explaining how customers bought the appliances to keep their maids, and potential COVID-19 infections, out of their homes. “This time, we couldn’t even sell two units.”
On Tuesday (Nov 30), India on paper reported a big jump in growth, of 8.4%, in the July-to-September period compared with a contraction of 7.4% for the same period a year earlier. But that heady number conceals lingering damage from COVID-19 to an economy that needs to generate a steady number of jobs to keep its young, vast population content. The country’s two waves since early last year have killed hundreds of thousands of people, pushed millions into poverty and robbed the country of more than a year of badly needed growth.
Compared with two years ago, before the coronavirus struck, economic output was 4 percentage points higher, according to the Ministry of Statistics and Program Implementation. Even that figure reflects pent-up demand rather than a healthy rise in gross domestic product, said Priyanka Kishore, the head of India and Southeast Asia for Oxford Economics, a research firm.
“If we talk about the structural hits and the GDP level compared to pre-COVID baselines, it’s still 10% or so lower,” she said.
The weak and uneven recovery is putting pressure on Prime Minister Narendra Modi to do something about growth. It is also putting renewed focus on longer-term problems that were weighing down India’s economy even before the pandemic: slowing demand, a manufacturing sector struggling to take off and shrinking labour participation.
India’s vaccination campaign has helped put the economy back on track. Kishore forecast growth of 7.8% next year, about 2.5 percentage points higher than what it was in 2019. Still, that would leave 2022 output 9% lower than she had forecast before the pandemic struck.
“We never really close the gap,” she said.
In the 1990s, India liberalized its economy, paving the way for more investment. Growth began surging in the next two decades, with a prospect that the country could someday replace China as the world’s factory floor. But India’s chaotic path to industrialization, and its inability to attract low-skilled manufacturing jobs that were moving out of China, are at the heart of its problems today, experts say.
Economists are particularly concerned about the slow rate of job creation and employment, which in turn hurts demand.
“This takes the form of a vicious circle,” said Mahesh Vyas, the chief executive of the Centre for Monitoring Indian Economy. “If the employment rate keeps falling, they discourage fresh investments. If there are no fresh investments, then India cannot see fresh employment.”
Modi’s reluctance to spend big is holding the country back, Vyas said. Despite a 65% increase in tax collections this year as compared with last year, the government’s expenditure grew by only 10%, he said. “The government has not tried to address the problem of aggregate demand.”
In November, Modi’s finance minister, Nirmala Sitharaman, announced that the central government would disburse an additional $6.3 billion to states to encourage them to spend on infrastructure. In August, the government moved to revive the economy by selling stakes worth close to $81 billion in state-owned assets like airports, railway stations and stadiums. It remains to be seen if these measures will lead to more investment, economists say.
Despite the overall weakness, India’s stock market is rallying, and rich and upper-middle-class consumers are rushing to its malls.
These are the kind of people who would normally be traveling to Italy, London or the United States to celebrate their holidays there, said Wilson Dass, a store manager at The Collective, a high-end chain selling items like cashmere overcoats and expensive leather bags. Instead, they are coming to his store, in the industrial hub of Gurugram.
Dass said he has sold many more Hackett jackets and Versace bags this year, especially recently, than in prior years.
Sales are up by more than 30% this year compared with 2019, he said, and the big winter shopping season hasn’t even begun.
His customers, a mix of business executives, wealthy wives and India’s “neo-rich,” want to show off their Karl Lagerfeld bags and Michael Kors tracksuits, he said.
“They have all this money,” Dass said. “They have to spend it somewhere.”
India’s economic statistics might be better at reflecting the ebullience of India’s economy than the damage. In 2015, the country changed how it calculated growth. The new approach, largely seen as more modern and approved by Modi’s predecessor, depended on numbers reported by the formal sector, like major companies. But it assumed that the country’s vast informal sector, which employs farmhands, day labourers, rickshaw drivers and many millions of others, would grow in tandem with the formal sector.
Defying that assumption, the pandemic disproportionately hurt India’s informal economy, which employs an estimated 90% of the country’s workforce, though precise figures are elusive, because it is off the books. Since the beginning of the pandemic, at least 10 million Indians have lost stable, well-paying salaried jobs, according to Vyas.
Other economic indicators point to weakness. Industrial production contracted by more than 2% in September, and the trend is likely to get worse as manufacturers struggle to overcome major supply-chain bottlenecks.
In October, car and two-wheeler sales dropped by more than 25% compared with the same month in 2019, a 10-year low.
“India is tired, honestly, and it wants growth,” Kishore said.
On a recent morning, those sentiments were on display at Ramphal Chowk, at a row of stores selling electronics: each with a red carpet and potted palm trees placed strategically at the entrance to attract buyers, and each empty of customers.
Sales have declined by more than 50% as compared with 2019, said Akash Mittal, a salesman at one of the stores selling 52-inch television panels, washing machines, laptops and kitchen appliances.
“People have no money,” said Mittal, 31. “They’re worried when there will be the next lockdown, so they want to save whatever little they have.”
Mittal said his customers are thinking twice about buying even small items like electric kettles, mixers and grinders, appliances that are a staple in most Indian kitchens. “It’s not their fault,” he said. “They still have no jobs.”
-New York Times