What Is Behind the K-shaped Growth?
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)
Comments
sundarbtw
11 months ago
Corruption is not the only reason for this uneven growth. This exists in our country for century when we are thinking corruption as few decade problem. One can see seemingly odd conversations in old movies 70s and mid 60s, friend asking someone, can I get rs 100!!??. Widespread prosperity indeed has happened over last 3 decades. A bank employee or government servant or ordinary pvt employee can't meet his family end during 70s and 80s. Whereas the same is possible in current era.
saharaaj
1 year ago
my study suggests growth of high value items is due to black money power . the owner of such power political mediators and predatory vultures. Let IB do some study what is the profession of high value spenders...?
but allegation of insider trading after so many ye
1 year ago
such feature is somehow in every big country artificial intelligence and automation enhance it, but problem is elsewhere the quality of service rendered by country to her commoner one hand if money in your pocket easy access to charted flight on the other hand without reservation class even cattle will be ashamed
giteshs
1 year ago
Since 2014 corruption at center is down considerably. But corruption at the state and local level cannot be controlled easily. Center can only prod the states. BJP can put non-corrupt CM's where at has power and it is possible to do so. BJP has failed miserably in doing so in Karnataka. In other states things are much better.
This situation is like Tamilnadu, whether it is DMK or AIDMK, corruption problem is not solved. It just moved from one party to another.
Similar situation in Maharashtra where corruption does not change with the political party.

A change at local level can happen only if people demand such a change. People seem to be fine with paying off. Shivsena is ruling BMC since eternity without doing much of development.
prasanna
1 year ago
Debashis, I will restrict my comment to K shaped recovery. Kitchen & Underwear is like the GUI Index. But some FMCGs are able to push their products in rural markets in Q4 of FY23. So there in lies a contradiction. We should compile quantities and prices of diverse commodities and services procured by Poor, Middle Class & Rich. Then compute our own Cost Inflation for each of the 3 classes. I do not believe in Govt. body computed inflation as they do not publish data the basis on which they compute it. Let there be transparency. Is Modji listening? If he does, Modiji may be in for surprises. The real inflation faced by these 3 categories would be markedly different. How will his Govt. address such an issue? The Govt. seems to suffer from lack of ideas and debates on such crucial matters.
Now coming to corruption. Contractors level corruption spreads by word of mouth and in course of time reaches the common man. It is likely that past Govt.s are thrown out due to anti incumbency main reason was their corruption affecting the common man as well. Whether or not Modiji succeeds in making a less corrupt Indian society will depend upon whether good teachers teach values to their students in all walks of life and in all professions and business. Morals values and social ethics are at their lowest in India and unfortunately Govt.s do nothing to enhance them. Its a shame.
but allegation of insider trading after so many ye
Replied to prasanna comment 1 year ago
when theory of Darwin will be removed from science syllabus it matter of time magic will be last 6 more years then theory of kicking out will be norm
Prithwiraj Chaudhuri
1 year ago
woww bhakt are already triggered , this is like thieves are stealing from your own bloody home and we are asking tea or coffee sir ???? ..... selling false hope is a great business ....
suketu
1 year ago
main problem on the planet is not corruption but child trafficking and harvesting adrenochrome.
angelo.extross
1 year ago
It is said that officials entrusted with the hunt for black money are famous for their love of it.
Talking of the weakening currency, I am reminded of what the late Sushma Swaraj, sitting in the opposition benches in August 2013, tweeted, "The Rupee has lost its value. The PM has lost his grace.”
bharath.mandon
1 year ago
Seems to be a biased report. Precision analysis required with evidence. Also you need to set your priorities right. Hence I disagree.
Kamal Garg
1 year ago
It is a dichotomy to assume that the corruption of 40% in Karnataka and at a very high rate elsewhere in BJP ruled States, and still the economy is growing and rich are becoming richer. Who are these contractors/businessmen who pay hefty corruption bills of the ruling party. It is the rich ones. 40% hole in their earnings cannot make them richer. There is something wrong or missing with this article, its analysis and analogy.
adityag
1 year ago
Reducing corruption is like playing whack-a-mole. Anyone with a half understanding of systems thinking and public policy knows this.
vram2311
1 year ago
Quite a lop sided article , very uncharacteristic of Debashish
DJtrader
1 year ago
Aptly said, millions who voted for a better India feel cheated , hope the younger generation not exposed to government May turnout to be a better bet !
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