Pointers That India Is Witnessing A K-Shaped Recovery

Context: The economic ravages of the pandemic have had an uneven impact and taxation policies continue to be regressive.

Signs of a K-shaped recovery in India

• Insights from two-wheeler sector: Two-wheelers represent the economic situation of the lower and middle-class groups and India’s small businesses.
• A report by CRISIL indicates that in the year 2021, two-wheeler sales are set to decline by 3%-6% year-over-year. This is on top of a lower base in the year 2020 already affected by the pandemic.
• Impact of regressive taxation: Government insists on maintaining indirect taxes on fuel and consumer products while lowering corporate taxes.
• There is tremendous pressure on the financial stability of these households, which seemingly face a sustained loss in disposable income.
• Continuing job losses: Over five million or 50 lakh people lost their jobs in October, according to a Centre for Monitoring Indian Economy (CMIE) report.
• Damped demand: Many of those who lost their jobs during this period are likely economically insecure and abstain from non-essential purchases.
• Inflation and poverty: This, paired with the astronomically high food and fuel prices, delivers a deadly blow pushing families to poverty.
• Weakening safety net: In the year 2021-2022, the Government of India had cut its budget allocation towards MGNREGA by 34%.
• Prospects of phenomenal recovery in stock market is limited: As less than 5% of India invest in equities.

Way forward

• Government stimulus: Consider a bottom-up approach through unemployment cheques and social welfare schemes as done in US and Europe.
• Prioritise those who are more likely to spend (the middle and lower-middle-class) rather than those who have a greater propensity to save.
• Social welfare schemes must be given greater importance to assist households.
• Taxation normalisation: Government to increase progressive (direct) taxes and reduce regressive (indirect) taxes to ease the financial pressure on lower-income households.

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