What Zomato and iPhones can tell you about how Indian economy is growing

India's consumption story in the next decade will be written by 90% of the people who are at the bottom the pyramid, says SBI in a report that called 'K-shaped' recovery as a flawed narrative. 

"We believe that by the end of the next decade 50% of consumption or additional Rs 16 trillion would be done by
90% of the people who are at the bottom the pyramid...an additional Rs 8.2 trillion of consumption has moved to the lower end of the pyramid post pandemic following saving of expenditure through free food, shelter and medical being provided by government," the report said. 

The SBI report, which analysed tax return data, said inequality, measured by Gini coefficient, dipped during FY14 and FY22, 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 in India is expected to jump to 85 million in the assessment year 2024 from 74 million in the previous assessment year. The report pointed to a rise in female income tax filers, indicating a higher participation of women.

The report also underscored a shift in micro, small and medium enterprises, buoyed by 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.

Is there a K-shaped recovery on?

Calling the issue of K-shaped recovery baseless, the report questioned the efficacy of using ages-old proxies such as low 2-wheeler sales or fragmented land holdings to support some pre-destined narratives of India not doing well.

"Two-wheelers sales, a proxy often taken at face value to gauge the soundness of rural and semi-urban households had their stellar performance in FY19, clocking volumes of 2.12 crore units, ironically in a year when agri GDP slouched at 2.1% and rainfall deficiency spiked to 14%," the report said. 

SBI economists see total sales touching 1.80 crores this fiscal. "More importantly post-pandemic, the sales figures could reflect households reconfiguring their savings towards physical assets (real estate) and a not too small buyers percentage shifting to used/entry-level cars (substitution effect)..Tractor sales, another rural resilience
indicator, have been quite gung-ho recently."

SBI in its report cites Zomato's sale as an example of rising prowess of hinterland prosperity and disposable income. "We estimate…almost 2 crore family members (assuming 4 family members per 0.44 crore active users) are actively using Zomato from purely Semi-Urban areas."

Why the tax department loves UP
The report says states such as Maharashtra, Gujarat, Delhi, and Karnataka, which have been traditional leaders in income tax base are nearing saturation and their share in overall tax base is decreasing continuously. Uttar Pradesh is the leader in increasing share in Income tax base, followed by Andhra Pradesh, Rajasthan, Punjab, Madhya Pradesh and Haryana.

The report said rise in income is fuelling affordability, supplemented duly by demographic trends with a youth bulge, easy availability of financing options, information at fingertips and a change in lifestyle preferences, from food to fashion as online marketplaces.

India's iPhone sales affirm the middle class in flux. Apple sees a lot of headroom going forward even as its premium products now command a 6% share in the fiercely competitive market (1% in 2019), notorious for its price sensitivity till recently, report added.