Different experiences of two India

Recent remarks by senior management in various fast-moving consumer goods (FMCG) companies have brought to the fore a knotty problem: Is the Indian economy diverging?

In other words, are two different India experiencing two very different economic paths? That demand is no longer as dynamic as it was, but that premium products are doing well and may continue to do well.

Talk of a “K-shaped recovery” from the pandemic has been around for years; but the question now is whether that is causing India to settle into a “K-shaped economy.”

Are two different segments of the economy growing at different paces and through different mechanisms?

It is worth noting that, if this narrative is correct, it is considerably more complicated than the usual. If a division exists and is growing, it is not one of urban prosperity and rural distress. It is one between premium categories – the top decile or less of the Indian economy – and those much further down the income chain.

Indeed, at this time, it appears that rural demand might be recovering, with a reasonably good monsoon behind it – and the weakness comes from urban demand. In fact, according to some of the companies, the weakness comes from metro cities in particular, not even from Tier-I Tier-II towns.

In fact, one of the FMCG leaders has gone on record recently, warning that India’ middle class was eroding. This is certainly an unexpected and troubling direction. A country in which the elite is growing and consuming premium products is not necessarily in trouble; when that is happening alongside a middle class that is stagnant or shrinking, it is quite another matter.

There is also the fact that urban poverty is not clearly understood or visible in India. More data on how urban prosperity and poverty are being experienced is needed.

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