India’s rosy growth story: Consumption falls but GDP grows!

There is a disconnect between consumption figures and the country’s growth story. India is a domestic consumption-led economy. But its domestic consumption story is faltering across a wide range of products like cars, two-wheelers, consumer durables, FMCG and services such as air travel with volumes dropping to multi-quarter lows. Households are cutting down even on consumption of essential items like soaps, toothpastes, packaged foods and biscuits. Volume growth of most of leading FMCG companies has dropped to a six-to-seven-quarter low.

“In India, demand continued to be challenging, impacted by a general consumption slowdown,” Godrej Consumer Products Ltd said in a regulatory filing to stock exchanges after its results for April to June 2019 quarter. “The progress of the monsoons after a late onset, recovery in liquidity conditions and execution of various government schemes announced will be keenly watched for signs of a revival in consumption trends,” Marico, a leading manufacturer of biscuits, said after its Q1 results were out.

The rapid decline in automobile sales since last one year is now in public domain. According to the monthly vehicle registration data for the Month of June 2019 released by the Federation of Automobile Dealers Associations (FADA), new car registrations are down by 4.6 per cent. Two-Wheeler registrations are down by 5 per cent in June 2019. Passenger vehicle sales posted a year-on-year (y-o-y) decline of 16 per cent and two-wheeler sales posted a y-o-y decline of 11 per cent in June 2019. Top automobile makers like Maruti Suzuki, Mahindra & Mahindra and Ashok Leyland have closed their factories temporarily to reduce inventory levels.

Domestic air traffic, which prides itself being one of the world’s fastest growing aviation markets, fell for the first time in six years during April 2019. Indian carriers flew 11.3 million domestic passengers in April 2019, a y-o-y drop of 2 per cent compared to 11.5 million domestic passengers flown in the same month of last year, according to data released by the DGCA.

But India’s growth story is rosy. Between 2014-15 and 2018-19, the Indian economy is reported to have grown at a healthy 7.5 per cent per year. “In just 5 years, we have added $1 trillion Dollar to the nation’s GDP,” Finance Minister Nirmala Sitharaman said in her Budget speech.

Let us assume, for a moment, that the GDP figures of NDA government pass through the smell test. People are cutting down on consumption of toothpastes and biscuits. If so, this added GDP of USD 1 trillion (₹70 lakh crore) has gone into whose hands?

An absolute no brainer is that ₹10 lakh crore or more was looted from the banks by delinquent corporates. Another ₹10 lakh crore has gone into the government exchequer by the way of increased petrol and diesel prices and cess. Most of the balance ₹50 lakh crore has gathered in the hands of top 1 per cent wealthy people. Formalisation of economy and pro-big-business policies have led to a perceptible polarisation in the economy. The top 1 per cent of country’s richest got richer by 39 per cent in 2018, as against just 3 per cent increase in the wealth of the bottom-half of the population during the same period, as per an Oxfam study.

India’s top 1 per cent own half of its national wealth. The bottom 60 per cent own just 4.8 per cent. The wealth of just top 10 billionaires is equivalent to the wealth of the bottom 50 per cent of the country’s population. This polarisation of the nation’s income and wealth is best reflected in the stock market valuations. Out of the total market capitalisation of ₹149 lakh crore of BSE, only the top 10 companies account for one-third of the market cap.

The balance 4,000 odd companies account for the remaining two-third of market cap. Small investors holding in these top 10 companies is hardly 5 per cent or thereabouts.

During the last 5 years, market capitalisation of all listed companies in BSE has shot up from ₹90 lakh crore to ₹149 lakh crore. But most of this appreciation has happened only in the top 10 to 20 companies. Market cap of the rest of 4,000 companies, in which small investors’ holding is high, has in fact taken a hit during the last 5 years.

Very little of the $1 trillion added to GDP during the last 5 years has come into the hands of the common man.