K-shaped recovery narrative flawed and baseless: SBI Research

Nearly half of India’s consumption will be done by 90% of the population at the lower end by the end of the next decade, State Bank of India researchers said in a new report released Friday, pointing to the country bridging the inequality gap in the coming years and dismissing K-shaped recovery as a flawed narrative.

The researchers stated that an “additional Rs 8.2 trillion of consumption had moved to the lower end of the pyramid post-pandemic following the saving of expenditure through free food, shelter and medical being provided by the government.”

The figure is expected to double to Rs 16 trillion by 2040. Using I-T returns data, SBI economists stated that income inequality has decreased over the last few years and that the K-shaped recovery narrative was false.


Inequality, as measured by Gini coefficient, has declined during FY14 and FY22, SBI pointed out, noting that 36.3% of people belonging to the lowest income group in FY14 have since moved up the income value chain.

“Our study shows that an individual’s weighted mean income has risen from Rs3.1 lakh to Rs11.6 lakh during FY14-21. Further, based on the trends, we project the weighted mean income for FY22 to come in the range of Rs 12.5-13 lakh,” the report noted.

The number of taxpayers is set to increase to 85 million in the assessment year 2024 from 74 million in the previous assessment year. The research also noted a rise in female income tax filers, indicating a higher participation of women.

The report also highlighted a shift in micro, small and medium enterprises, with increasing formalisation and credited the success to greater integration in value chains and the government’s production-linked incentive scheme.

“MSME units are getting bigger and getting integrated into larger value chains with initiatives like PLI,” it said.

Problematic parameters
The research group of the country’s largest public sector bank further noted that the issue of K-shaped recovery was baseless, as people relied on parameters like two-wheeler sales to gauge rural demand.

“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, signalling more the renaissance of the new global south, is quite unpalatable,” said SBI researchers.

The researcher said that the sales figures post-pandemic could reflect households reconfiguring their savings towards physical assets (real estate) and a not-too-small buyer percentage shifting to used/entry-level cars (substitution effect).

“Tractor sales, another rural resilience indicator, have been quite gung-ho recently,” it said.

The researchers pointed out that two-wheeler sales had increased to 2.12 crore in FY19 when agriculture had grown 2.1%, and rainfall deficiency spiked to 14%; hence it was “fool-hardy” to take two-wheeler sales as a proxy for rural demand.

SBI researchers said that the growing base of Zomato users was also evidence of rural and semi-urban areas doing better.