Illusive middle class poses a real challenge to Indian Economy

Recently Jet Airways collapsed, and now the crisis at Pawan Hans , car’s and SUV sales are at an 8 year low it is not sectoral or cyclical. It needs a wider debate .

Recently, I ran into a senior executive of one of the four big consultancy firms, and he asked; “Sir, did you read the document that is floating around?” And he forwarded me the document ‘Billions to Bust’. This document is about 20 Billionaires in India who have gone bust or are about to going bust. It doesn’t paint a good story about the state of the economy. But, let us not go by subjective statements. Let us look at the data; inference drawn in the book: ‘Your Vote is Not Enough’;

Middle class illusion : “The number of credit card holders are 4.10 crore (as of August, 2018). It is implied that people who hold credit cards have the discretionary spending and buying power. Most of these people hold multiple cards, so, it would be safe to assume that the actual number of card holders are about 2 crores. Though, Kisan Credit cards (KCC) are used for agriculture purchases and have a lower limit, yet, for the sake of numbers, if we add them, it is 4.56 crore KCCs as of March, 2018. If we add affluent (2.29 crore), upper middle class (4.95 crore), the total number of people who have the discretionary spending capacity is about 13 crores, which is less than 10 % of the total population”. How on earth can we assume that these 10 % citizens will prop up the remaining 90 % of the population?

FDI figures prove the point : “Also, let us corroborate this data to FDI inflows data. India had an FDI inflow of USD 44 Bn in 2017 with a population of 1.3 bn; whereas Brazil, with a population of 210 Mn (smaller than the size of one state of India -UP - Population of 227 Mn), had an FDI inflow of 63 Bn. Does it ring an alarm? Yes, with a much smaller population than just one state of India, Brazil attracted 50 % more FDI than whole of India. Means that, return on investment of FDI dollars in Brazil is much more than in India. Also, it indicates that even with a much smaller population, it has more buying power”.

Irrational GDP numbers never tell the real story about the state of the economy. For that, we can take a cue from oil rich gulf nations, which have a high GDP and GDP per capita; but the oil wealth is concentrated in the royal family, and not distributed to every strata of the population. So, the data of the economic situation of India has to be looked at from a different data point and not GDP numbers only.

Auto sales : This year, the automobile companies have cut production, car’s and SUV sales are at an 8 year low, Telecom companies have a debt of 7 lac crore on a turnover of 2.5 lac crore, and the numbers convince me that they will never be able to serve this debt under the current scenario and is another calamity in the making! If we are dreaming for a successful 5G roll out, be warned! Opening newer airports have not helped the airlines. King-fisher, Jet airways and Air India are bankrupt, and this is a sector, where all the costs are borne by the flyer, and the fares are market driven! And if still the airlines are going bust, it is not just about their business model or fuel costs, it indicates a larger looming crisis- the state of the economy for middle class, and mere expansion of infrastructure alone would not help.

Sunrise sectors are failing : So, for India, if the sunrise sectors are facing headwinds and failing, we need to introspect and come out with a workable plan for boosting the middle class with regards to discretionary spending, and that too, immediately. We can have a great program like ‘Make in India’, but what we actually need is to aim at, ‘creating consumers on a large scale and not just large -scale enterprises’! If we fail to create customers for Make in India, businesses will become NPA and we will have job losses, and we have too many examples already, and more are in the offing.

Solution : We need to ensure that there is more money in the hands of middle-class. There are enough jobs to fuel the economy. Agriculture and MSME have to be taken care of; not just from demand creation and sustainability perspective, but also from profitability standpoint. Which means, that India needs enough consumers to fuel its India story. Just by chanting regularly that India is a land of 1.3 Bn consumers is like over-selling the India story, which does not add up as per the available numbers. And, if the consumer driven - the so-called sunrise sector companies, are facing strong economic headwinds, it requires us to address the issue before it’s too late!

We know; if the tailwinds are strong, the flight reaches before time, and if the headwinds are strong, the engine needs to exert more, burn more fuel and the passengers face turbulence, and above all, the flight goes slow, and in extreme cases, it leads to a hard-landing!

What's in store for the remaining part of 2019 : Remaining of 2019 will see the oil prices going up, GSP gone, a possibility of escalating trade wars , vulnerable rupee falling, with rainfall likely to be less than the normal it will aggravate the rural economy and impact the consumption story. Leaders will have to sit down after the elections and find a way to address the challenge that poses both cyclical and systemic risk to the Indian Economy

Prof. Rajendra Pratap Gupta is a leading public policy expert and author of the book ‘Your Vote is Not Enough’. Data & other excerpts quoted from the book with permission from the publisher. @rajendragupta

#Economy #slowdown #recession India #airlinecrisis #jetairways #globaleconomy #wef #Globalrisks #futureofagriculture #farmers #investment #investmentclimate #brics

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