India’s post-pandemic rise not uneven but shows the rise of the middle class, says SBI report

• The idea of K-shaped recovery post-pandemic in India is flawed and prejudiced, says a report by SBI Research.
• Economist Peter Atwatera defines K-shaped recovery as - stacked inequity on one side and stacked privilege on the other.
• India’s lower income groups are migrating to higher income groups, and their consumption patterns are changing.
• The number of ultra rich has gone up but their combined income has not increased greatly between FY14-FY21.
  

India’s income inequality has been debated since times immemorial. After the pandemic, the term K-shaped recovery, which essentially means an uneven recovery riding on certain sectors, has come to the fore. However, SBI Research doesn't agree with the theory and says that the current economic ‘shift’ has more to do with India’s remarkable ascendance with changing consumer preferences in purchases, savings and more.

“The oft repeated conundrum debating a K-shaped recovery post-pandemic seems at best flawed, prejudiced, ill-concocted and fanning interests of select quarters to whom India’s remarkable ascendance, signaling more the renaissance of the new global south, is quite unpalatable,” the report said.

Economist Peter Atwatera popularised the term K-shaped recovery. He describes it as "stacked inequity on one side and stacked privilege on the other”. But that’s not what’s happening in India, instead there has been a swelling of the middle class and gradual shifting of income groups.

Rise of the middle classes

There has been a gradual shift in people from the lowest income group, SBI Research says. It cites the income tax return filing data which shows that 36.3% of people who were earning less than ₹3.5 lakh in FY14 have left the income group to migrate upwards as of FY21.

“A comparison of disparity in income during FY14 and FY21 shows that there is a clear rightward shift in the income distribution curve signifying people in lower income brackets are increasing their income to converge towards their share in population,” the report says.

Shifting incomes of 36.3% people earning >₹3.5 lakh from FY14 to FY21
Source: SBI Research

On the top end, the number of rich individuals increased substantially — but their combined income hasn’t gone up substantially. In fact, even at the top-end, wealth has been distributed fairly well.


In fact the percentage contribution of the ultra-rich in the total wealth has come down. In FY14, combined income of over ₹100 crore contributed to 1.64% of total income. As their number swelled to 136 in FY21, their share in total income fell to 0.77%.

“Therefore, growth is seen in all income classes but it’s skewedness has been decreasing with convergence of income towards the middle from both top as well as bottom,” said SBI Research.

iPhones and India’s consumption story

India has always been known as a price sensitive market, but that’s changing thanks to its ‘young’ demographics. The rise in income is shifting the goalpost for affordability, combined with change in lifestyle preferences.

This is also fuelled by online marketplaces which evolved into ‘a wish fulfilling wand’, offering brands (and their alternatives) at hefty discounts, the report says. A very good case study to this theory is Apple’s keen interest in the market. Its CEO Tim Cook labels it an ‘extraordinary market’.

“An interesting case affirming India’s rising middle class in flux could be iPhone sales. The company has more than 50% share in the smartphone price category above ₹50,000, aiming to sell around 9 million iPhones this year, riding the premiumization wave enveloping the consumer psyche, a harbinger of good times on the roll,” the report says.

Do duni chaar: Middle class adds more wheels

The report believes that Digital India with its direct benefits transferred to beneficiaries’ accounts and ‘the multiverse of welfare schemes’ have changed the way Indians spend and consume. A new India’s rural economic growth cannot be measured by ‘old proxies’ like two-wheeler sales and more.

The fall in 2-wheelers has long been associated with rural distress but that’s no more the case. It quotes FY19 data wherein two-wheeler sales hit a high of around 2.12 crore units – when agri GDP slouched to 2.1% and rainfall deficiency spiked.

Like in the case of devices, here too, there is a premiumization trend – that’s making people buy more wheels as they buy their vehicles. That indicates a transition, the report says.

“People are buying more expensive motorcycles and cars than what they’ve bought earlier. And, two wheelers are being considered as giffen goods with the rise of income, and people are substituting two wheelers for the four wheelers,” SBI Research says.