Last week, I was chatting with a director of a kitchen appliances company and he mentioned that "pots and pans are not selling well." This is borne out by the poor sales growth of all kitchen appliance companies. On the other hand, India's largest luxury and premium watch retailer, Ethos, which sells Omega, Jaeger LeCoultre, Panerai, Bvlgari, Longines, Baume & Mercier, Tissot, and Raymond Weil—each of them costing lakhs—reported a 44% increase in sales and 262% rise in net profit for the March quarter. While underwear sales have collapsed and two-wheeler sales have crashed to the 2012 level, BMW has reported 37% higher sales for its luxury cars in 2022.
This kind of lopsided growth is called K-shaped growth or K-shaped recovery because some parts of the economy may experience strong growth while others continue to decline, like two arms of the letter 'K'. The worst kind of K-shaped growth is when a small number of (very rich) people do very well while the vast majority languishes.
Perhaps reacting to chatter about this lopsided prosperity, the government has talked about reducing income inequality by taxing the rich a bit more. As I argued last fortnight, this is a silly idea, probably more political than economic.
Unless the government finds a way of getting to the source of this income—rather, spending—disparity, it cannot do much to reduce inequality. That leads us to the question: why is India experiencing K-shaped growth?
I don't profess to know why the lower arm of K, that is items of daily consumption, are not selling well. After all, this government has apparently been pouring money into rural areas through a variety of schemes and has been claiming that the holy trinity of Jandhan, Aadhaar and mobile (JAM), have targeted benefits so very accurately that leakage and wastage have been eliminated.
Maybe inflation in real life is much higher than the official number, which has sapped the purchasing power of the middle class and the poor. But I can make a partial guess about why the upper arm of K, the luxury items, are selling well. The short answer is widespread corruption.
Last April, something unusual happened in India which has forever ranked low, even among developing countries, in Transparency International's corruption perception index. Contractors handling government projects in Karnataka alleged that some ministers and members of the legislative assembly (MLAs) of the Bharatiya Janata Party (BJP) had been demanding a 40% commission to award projects and clear bills. One of the contractors committed suicide, unable to pay bribes to get his bills cleared. Many BJP politicians allegedly have also turned their family members and relatives into contractors.
The same accusation was levelled again in August and, by now, the state government was being referred to as the 40% commission government. Welfare programmes in the state have ground to a halt because of the BJP government's allegedly "unending hunger for commission."
Another association of contractors who handled the government's residential school projects too wrote to the chief minister (CM), threatening an indefinite strike if their bills were not cleared immediately.
Corruption is rife everywhere in states, municipalities and panchayats, although it may have exceeded all limits in Karnataka. Every week, newspapers publish stories about action against government officials and the recovery of crores of rupees in cash and jewellery from their homes.
In an interview with Outlook magazine in February 2022, VN Khare, former chief justice of the Supreme Court, said, "Corruption is rampant in the lower courts."
Widespread corruption is holding back India's economic growth because it kills the virtuous cycle of enterprise, productivity and wealth creation. Rampaging corruption also sends out the vile signal that it is alright for people with power (netas and babus) to acquire undeserved wealth and spending power.
A decade ago, the BJP rode a very successful campaign against corruption to storm into power. Among the few steps taken to prevent corruption, was the new law Prohibition of Benami Property Transactions Act, 2016 that would confiscate benami property. As of September 2021, the government of India had attached or confiscated benami assets worth only Rs7,000 crore.
The second step was demonetisation, which did not ferret out any black money but caused enormous hardship to ordinary people.
In 2018, for some strange reason, the government amended the Prevention of Corruption (Amendment) Act (PCA), 2018 making it harder to investigate and prosecute corrupt public servants. Even before this dilution, according to some estimates, the conviction rate under PCA was under 20%.
Is the government really interested in rooting out corruption? In an interview with Karan Thapar, Satya Pal Malik, former governor of Jammu & Kashmir, said that "PM Modi has no real problem with corruption."
In my previous column, I pointed out that for a poor country to become prosperous and reduce income inequality, it has to record high growth (not sporadic growth) over many years to be able to lift millions of people from poverty; this is possible only if inflation is low (2%-3%), interest rates are low and currency is stable.
But India's actual inflation and interest rates remain high while the currency has weakened, reflecting internal economic weakness—it is just like high body temperature reflecting the presence of some infection.
In the case of the economy, that infection is corruption, which creates a higher-cost economy, reduces investment, saps enterprise, lowers productivity and, ultimately, shows up in inflation, weak currency, high-interest rates and reduced consumption of the masses.
Reducing corruption is not just a moral issue but an economic one, especially if we have dreams of becoming an economic superpower.
(This article first appeared in Business Standard newspaper)