The finance ministry had immediately denied any such move, saying there were no plans to raise taxes on the richie rich citizens of the land.
However, what may not be ignored is the widening chasm in demand for luxury items and other basic consumer goods amid elevated inflation and high unemployment rate.
India remains on course to be the fastest growing major economy in this fiscal year that started April 1. However, some economists opine that concerns on inequality tend to be negated when the economy is doing well. The widening gap and inequality are not tailwinds for a country, particularly for one that relies on private consumption for some 60% of its growth.
According to data from World Inequality Report 2022, where the United Nations Development Programme was a scientific partner, India is among the most unequal countries in the world, with rising poverty and an ‘affluent elite.’ The report said that the top 10% and 1% in India hold 57% and 22% of the total national income.
Priorities for IndiansAmid the hullabaloo of Apple opening their first retail stores in India and people queuing up to lap up phones costing upwards of Rs 1 lakh each, a grim fact is the Asian nation’s per capita income is the lowest among 26 countries where the iPhone maker has retail stores.Luxury car sales accelerated in 2022 from its previous year, whereas sales at Bajaj Auto, one of the country’s biggest makers of two-wheelers, seen as a utility vehicle, dropped 10%. Mercedes-Benz expects India to be the fastest growing market this year as well.
In contrast, the 2023 PwC Global Consumer Insights Pulse Survey said, 63% of Indian consumers are tightening expenditure on non-essential goods and services, while 74% of the Indian respondents said they were worried about their personal financial situation.
India’s essential medicines including painkillers, antibiotics and anti-infectives became costlier by more than 12% from April, the highest annual increase on record in the prices of these medicines.
While the bulk of citizens in the most populous country have to struggle to get beds in government hospitals for free treatment, some Indians are also insuring luxury items and even their pets.
“We are finding that there is a trend of people investing in luxury products, especially post the pandemic, along with insuring the same. People appear to have started buying luxury products ranging from cars, two-wheelers, yachts, holiday homes to watches, branded jewellery and pens, and they need insurance protection,” said Raghavendra Rao, Chief Distribution Officer, Future Generali India Insurance.
Pet adoptions are also growing at a fast pace and more and more people are adopting pets at their homes.
“As pets are now considered to be a part of the family, the pet parents are going all out to treat them the same way as one would treat their own family member. Pets are also being insured for medical treatments, OPD treatments, funeral cost, third party liability etc.,” Rao added.
The shape of recovery & inflation
Krishnamurthy Subramanian, former chief economic adviser of India who held the post during the peak pandemic days, has often vouched for India’s recovery to be V-shaped and rebutted ‘tenuous claims of K-shaped recovery’.
However, many experts and economists had referred to India’s recovery to be K-shaped, which portends inequality and diverging economic scenarios.
“There has been a K-shaped recovery across the world and India is also not an exception. The depletion of savings during Covid was more in the low-income households, while the same was much lesser in higher income households given the share of essential expenses in the household budget being higher at the lower income levels,” said Ranen Banerjee. Partner and Leader Economic Advisory Services, PwC India.
A galloping inflation rate has been another big evil adding to the problems of not just Indians but for all across the globe, thanks to the Russia-Ukraine war that came soon after the world hoped to set free from the clutches of the fatal pandemic which ravaged economic activities and rendered millions jobless in India alone.
For the first time in six years, rural inflation in India was higher than urban inflation in fiscal 2023. The average inflation in FY23 was 6.7%, prices in rural areas increased 6.8% from a year earlier. The urban retail inflation averaged 6.4% in FY23. Food and clothing inflation was higher in rural areas, whereas urban centres saw sharper services inflation.
India’s retail inflation had hit an eight-year high in April last year and mostly stayed above the Reserve Bank of India’s 6% tolerance ceiling. This forced policymakers to sharply raise rates, eventually leading to high retail loan rates including that for homes.
“The economic headwinds are having quite a detrimental impact on merchandise exports that are labour intensive. This is likely to impact jobs and household incomes. The impact of high core inflation and food inflation is more at the lower end of the income spectrum,” PwC’s Banerjee said.
Moreover, if we have a downward growth trajectory and high price levels, it will put more pressure on the low-income household budgets, he added.
However, to draw some comfort, India’s inflation rate in March had eased to a 16-month low.
Base effects are expected to turn favourable over the quarter ahead, pushing inflation below 5% and providing relief across income groups especially as incremental pressure on sub-segments like cereals, vegetables etc are expected to ease, said Radhika Rao, Senior Economist and Executive Director at DBS Bank, Singapore.
Basic Necessities: Roti, Kapada aur Makaan
The basic necessities – roti, kapada aur makaan, or food, clothing and shelter, ironically are what many Indians are struggling to afford, and the staples may become luxuries.
Food
A clear indicator for this is that though FMCG revenues have trended higher, volumes took a hit. In fact, the revenue rise for the FMCGs largely came on the back of price hikes, making it more difficult for the lower income households to buy groceries.
Small packs of grocery or other FMCG items, ranging from soaps to coffee, are typically pushed in rural markets. However, they are now also seeing demand in urban areas. The contribution of smaller packs of Rs 5, Rs 10 and Rs 20 in urban markets to overall sales has increased by almost 5% in the past two months, FMCG executives told ET in February.
Almost all FMCG firms had resorted to reducing the grammage of multiple packs while keeping price points intact, as prices of commodities such as palm oil, wheat, sugar and coffee hit record highs.
Nestle India’s Chairman Suresh Narayanan had flagged “storm clouds of food inflation” to have continued in 2023, while Unilever global chief executive Alan Jope said that high inflation impacted demand from low income consumers in Indian villages.
Cereals, the largest component of the food basket and a staple food item, have been a key concern over the past few months as its annual inflation rate of 16% in January was the fastest pace since June 2013. Wheat prices in January surged 25% on year.
Data for March showed cereals and products’ inflation rate was at 15.3%. Milk inflation was 9.3% last month.
Organised dairy players, including Mother Dairy and Amul, have increased milk prices multiple times since last year. Prices of milk, seen to be a nourisher for kids, are expected to rise more, according to industry executives.
Clothing
Retail prices of clothing and footwear surged 8.2% on year in March.
India’s apparel market grew by 15% in fiscal 2023, according to data released by the Clothing Manufacturers Association of India. However, it was driven by price hikes and not sales. In fact, sales dropped 3%. Cotton has increased by 50% over the last couple of years and most of the manufacturers have hiked prices by 15-20%, the report said
K. Selvaraj, president of the Gani market weekly textile traders’ association told The HIndu that wholesale price of basic garments, like vest, has increased to Rs 140 from Rs 90 per piece.
The textile industry too has taken a hit due to falling demand and manufacturers have warned about looming layoffs.
Housing
According to recent reports, residential rentals in Bengaluru have experienced a significant uptick in the past year and corporate employees are struggling to secure housing. Property brokers claim that housing prices and rental yields have experienced a significant rise across seven major cities in India over the past five years.
In March, realty major DLF said it has sold 1,137 luxury apartments, priced Rs 7 crore and above, for over Rs 8,000 crore within three days, in its housing project in Gurugram.
This is in contrast to housing prices going out of affordability range for many lower and middle-income groups, while they also feel the pinch from high loan interest rates.
“There is no denying that demand for affordable housing does remain high but the target audience of the affordable segment (many employed in MSMEs) were severely impacted by the pandemic in contrast to premium and luxury category buyers. These affordable housing buyers thus deferred their purchase decisions and we saw a dip in the number of homes sold in the affordable category (homes priced below Rs 40 lakh),” said Prashant Thakur, Senior Director & Head – Research, ANAROCK Group.
Thakur said affordable housing developers’ profit margins were already wafer-thin, and amid rising inflationary trends of basic input costs (cement, steel, labour, etc.), it became even more difficult for them to launch budget homes since increasing prices in this highly cost-sensitive segment defeats the purpose.
Thus, even while the notional demand for affordable housing is high, the actual affordability is limited, given the loan rate hikes and price rise by developers in the last one year, he added.