Debunking K-shaped Recovery

SBI Research: Debunking K-shaped recovery by Aayushi Bhargava

In this summary note, Aayushi Bhargava unpacks the much talked about K-shaped recovery of Indian economy through a recent research report by State Bank of India .

The document by SBI Research debunks the notion of a K-shaped recovery post-pandemic in India. It presents a comprehensive analysis of income inequality, migration of taxpayers to higher income brackets, transition of small firms into larger entities, and changing consumption patterns.

Overview of the Economic Landscape

The State Bank of India's Economic Research Department has conducted an in-depth study on the economic situation in India following the pandemic. Contrary to the popular belief in a K-shaped recovery, the report delves into income, consumption, and policy measures.

·?????? Post-pandemic analysis: The report examines the economic landscape after the pandemic.

·?????? K-shaped recovery: The common notion of a K-shaped recovery is challenged.

·?????? Income and consumption: Focus on the changes in income and consumption patterns.

·?????? Policy measures: Discussion on the initiatives aimed at improving the economic conditions of the masses.

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Income Inequality and the Gini Coefficient

The study presents a notable decrease in income inequality, as evidenced by the Gini coefficient's drop.

·?????? Gini coefficient drop: From 0.472 to 0.402 between FY14-FY22.

·?????? Income mobility: A "Great Migration" witnessed at the lower end of the income pyramid.

·?????? Taxpayer income growth: A 21.1% income increase for 36.3% of taxpayers moving to higher income groups.

The study reveals a significant decline in income inequality, with the Gini coefficient reducing from 0.472 to 0.402 during FY14-FY22. This decline is attributed to a "Great Migration" at the bottom of the income pyramid, with 36.3% of taxpayers moving to higher income groups, resulting in a 21.1% increase in income for this segment. The share of income for individuals earning less than Rs 3.5 lakhs has also increased, indicating a rise in income for this group.

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Industrial Transformation and Labor Force Participation

The document sheds light on the transformation within the industry and the labor market, particularly focusing on female participation.

·?????? Micro to larger firms: Transition of micro-sized firms to larger entities.

·?????? Female labour force: An increase in female taxpayers to around 15% of individual tax filers.

The report highlights the transition of micro-sized firms into small, medium, and large-sized entities, reflecting the changing landscape of the industry. It also discusses the rising female labour force participation and estimates that female taxpayers constitute around 15% of individual tax filers in India.

Consumption Patterns and Asset Preferences

The report explores the shift in consumption and asset preferences post-pandemic.

·?????? Financial over physical assets: A trend towards financial assets rather than physical ones.

·?????? Bottom 90% consumption: Increased consumption by the lower 90% of the population.

Debunking Myths: Two-Wheeler Sales and Rural Distress

The study addresses misconceptions regarding two-wheeler sales as an indicator of rural distress.

·?????? Two-wheeler sales: Not a definitive proxy for rural distress.

·?????? Vehicle preference shift: Rising incomes leading to a preference for four-wheelers over two-wheelers.

The document emphasizes the shift towards financial assets from physical assets in the post-pandemic period and the increase in consumption by the bottom 90% of the population. It also delves into the changing dynamics of consumption, such as the rising popularity of food delivery platforms like Zomato in non-metro areas and the shifting preference from two-wheelers to four-wheelers.

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Insights into Non-Metro Consumption Trends

Insights into changing consumption dynamics, particularly in non-metro areas, are provided.

·?????? Food delivery platforms: Growing popularity in non-metro regions.

·?????? Vehicle preferences: A shift from two-wheelers to four-wheelers is observed.

The study challenges the notion that two-wheeler sales are a proxy for rural distress, citing factors such as the rise in income leading to the substitution of two-wheelers for four-wheelers. It also explores the shift in asset classes and the changing canvas of savings versus consumption, reflecting the evolving economic landscape.

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Aayushi Bhargava is a student at Institute of Law Nirma University and currently an intern at CIRC - CUTS Institute for Regulation and Competition

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