The COVID-19 pandemic has upended economies across the globe, and India has been no exception. As the country struggles to recover from the devastating effects of the virus, it is crucial to analyze the true state of the Indian economy. In the following lines, we will delve into the concept of the marginalization of the unorganized sector by the corporate sector and its implications for India's economic growth and inequality. We will also examine the disparities between the organized and unorganized sectors, the rising number of billionaires, and the invisibility of the unorganized sector in policy and data. Additionally, we will explore alternate growth assumptions and their impact on India's economic growth rate. Through this analysis, we aim to shed light on the significant challenges facing the Indian economy and provide a fresh perspective on its growth trajectory.
The Surprising Growth of the Corporate Sector:
According to the Reserve Bank of India (RBI) data for the years 2020-2022, the corporate sector's sales increased by 41%, with profits growing at a rate of 20%. These figures are exceptionally high, considering the overall lackluster growth of the economy during this period. The significant growth of the corporate sector can only be at the expense of the non-corporate sector, indicating the marginalization of the unorganized sector by the corporate sector. This is a result of a shift in demand from the unorganized to the organized sector, leading to a rapid rise in sales and profits for corporations.
Rising Inequality and Insufficient Demand:
The drastic increase in the corporate sector's sales and profits demonstrates an expansion of its pricing power and monopoly control over the market. Despite a stagnant economy and a shortage of demand, the corporate sector managed to enjoy substantial growth. This trend reveals a crucial factor contributing to the shortfall of demand in the economy – increasing inequality. As the growth of the organized sector outpaces that of the unorganized sector, inequality rises, leading to a decline in overall economic growth. Even before the pandemic, India experienced a slowdown in its growth rate due to this rising inequality. Consequently, the notion of India being the world's fastest-growing large economy becomes questionable.
The Stock Market's Role in Showcasing Inequality:
The record high levels of the stock market serve as evidence of the corporate sector's success and the rapid rise in inequalities. The stock market's swift recovery following the initial decline during the pandemic reflects the corporate sector's resilience and profitability. Such success is further exemplified by the surge in the number of billionaires in India, making it the third-largest hub of billionaires globally. This growth occurs despite India's comparatively low per capita income, highlighting the stark contrast between the rich and the poor. While the poor suffer from unemployment and income loss, the wealthy continue to accumulate vast wealth. This increasing distinction in wealth distribution contributes to the shift in demand from the unorganized sector to the organized sector.
The Invisibility of the Unorganized Sector:
The marginalization of the unorganized sector can be observed both in data and policy. Official data predominantly focuses on the organized sector, giving limited attention to the unorganized sector. Consequently, policy responses neglect the unorganized sector's specific needs, exacerbating the challenges faced by this marginalized sector. This invisibilization leads to the marginalization of the unorganized sector by the organized sector, much like the experienced during British rule, when the Indian market was restricted, and foreign goods flooded the country. Consequently, India witnessed a decline in its domestic industries and an increase in dependency on foreign shores, as demand shifted externally.
Decline of the Unorganized Sector:
The decline of the unorganized sector can be witnessed through various industries such as FMCG, pressure cooker, luggage, and leather goods. Industry leaders have openly acknowledged the decline in the unorganized sector while highlighting their own growth. In the FMCG sector, sentiments have been echoed by leaders from the luggage and leather goods industries, along with the significant expansion of e-commerce at the expense of neighborhood stores. These trends hint at a rapid decline in the unorganized sector, which further contributes to the growing inequalities and challenges faced by the Indian economy.
Alternate Assumptions and Growth Rates:
To gain a holistic understanding of India's economic growth, it is vital to explore alternate assumptions regarding the growth of the unorganized sector. Assuming a stagnant unorganized sector growth rate of 0%, the Indian economy's growth rate stands at 3.72%. However, if we assume a decline of 5% or 10% in the unorganized sector, the growth rate falls to 2.17% and 0.62%, respectively. These figures suggest that the official growth rate overestimates the true growth of the Indian economy. Furthermore, as the organized sector's growth is likely to be overestimated, it is plausible that the actual growth rate may even be negative. Such findings challenge the widely propagated notion of India's growth as the world's fastest-growing large economy.
The marginalization of the unorganized sector by the corporate sector has significant implications for India's economic growth and inequality. The rapid growth of the corporate sector at the expense of the unorganized sector, coupled with rising inequalities and the invisibilization of the unorganized sector in policy and data, highlights the urgent need to address the challenges faced by this marginalized sector. By reevaluating growth assumptions and recognizing the decline of the unorganized sector, policymakers can design targeted interventions to foster inclusive growth and reduce inequalities. Only through a comprehensive understanding of the true state of the Indian economy can India chart a path towards sustainable and equitable development.
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