Five years ago, the world economy was hit hard by the COVID-19 pandemic which brought life in almost all countries to a grinding halt. After reeling under its impact for about two years, most economies recovered to a great extent. However, in case of India, the economic recovery was K-shaped, a situation characterised by stagnant consumer spending for the vast majority and rising wealth for a select few. It is definitely worrying that this pattern of growth has only intensified over the last few quarters.
The middle class, once a formidable force in the Indian economy, has been nearly wiped out by virtue of the double whammy of stagnant wages and spiralling inflation. The declining sales of two-wheelers and entry-level cars underscore the financial struggles faced by millions of families in the country. The household savings rate in India is already at a five-decade low. At the same time, there has been a significant increase in household debt which has grown from 36.6 per cent of the gross domestic product (GDP) in June 2021 to 41 per cent in March 2024, according to the recent Financial Stability Report (2024) of the Reserve Bank of India (RBI). Not only that, the proportion of loans used for consumption purpose has risen over the years implying that households are primarily borrowing for consumption rather than for acquiring assets like homes or vehicles or for investing in children’s education.
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Similarly, India has experienced an unprecedented increase in loans secured by gold jewellery, reflecting the financial struggles faced by many households. The combination of slowing economic growth and surging gold prices over the past year has led to a remarkable 68 per cent rise in gold loans during the first nine months of the current fiscal year, compared to just 12.7 per cent in the same period last year, according to data from the RBI. The affinity for gold among Indians is well-known, with a substantial portion of savings typically invested in jewellery. As economic hardships intensified throughout 2024, many families turned to pledging their jewellery to obtain loans. Additionally, what makes gold loans more attractive is their relatively easier processing as compared to other unsecured loans such as personal loans.
Lured by a remarkable surge in the benchmark stock indices, Sensex and Nifty, which more than doubled since the onset of COVID-19 until the September quarter of last year, nearly 10 crore new investors began trading stocks and derivatives between 2020 and 2024. By end December 2024, the ownership of retail investors, who form the bulk of the small investors, and high-net-worth individuals (HNIs) in all listed companies on the National Stock Exchange (NSE) reached a historic high of 18.2 per cent, exceeding that of foreign portfolio investors (FPIs) for the first time since 2006. Adding to the pain of these crores of investors, India has now been experiencing its longest equity market slump in nearly thirty years, resulting in a loss of a whopping $1 trillion in market capitalization. This market decline is already impacting consumer spending and also poses a risk of further slowing of the economy which is projected to grow at its slowest pace in four years during the current financial year, primarily due to weak urban consumer demand. Consumer spending, which constitutes half of India’s GDP, is already being affected by stagnant income growth and high inflation.
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The economic hardships that majority of Indians feel right now need to be addressed at the earliest. However, prospects for that exercise appear bleak as the government at the Centre has other priorities, while the Opposition parties are busy raking up many trivial issues. This leaves the ordinary citizen to fend for himself.
