Two faces of India’s economy

Formalisation of the economy is being achieved at a great cost and loss of opportunities for the vast majority of informal workforce

Two faces of India’s economy
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V Venkateswara Rao

The reality of “two Indias” has been a subject of much socio-economic attention -- the apathy of rich India toward the country’s poor, inept growth sitting uneasily with macroeconomic stability, a tale of two ‘A’s of Indian economy and rest of the pack, thriving formal sector and shrinking informal sector, lack of talent in some sectors and rampant unemployment of unskilled, contained fiscal deficit of centre & the ballooning fiscal deficits of some states, booming direct tax collections and sagging per capita incomes of common people.

The first narrative centres around the improvement in macroeconomic stability and the sagging growth rate. A weak economic growth sits uneasily with improved macroeconomic stability. India GDP growth rate for 2020 was -7.96%, a 12.01% decline from 2019. The country’s GDP growth rate for 2019 was 4.04%, a 2.49% decline from 2018. Again, the GDP growth rate for 2018 was 6.53%, a 0.26% decline from 2017. The GDP growth rate for 2017 was 6.80%, a 1.46% decline from 2016.

In essence, India’s GDP growth rate of 8.3% in 2016 has turned into minus 7.96% in 2020, growth momentum steadily declining in all these five years. However, the estimated growth rate of 2021-22 has marginally crossed the growth rate of 2016, after a lapse of five years.

On the other hand, there was reasonable macro-economic stability, in terms of gross fiscal deficit of central government which was contained below 5% during the five years between 2015-16 and 2019-20. Infact, the fiscal deficit was around 3.5% till 2018-19. The fiscal deficit shot up to 6.8% only in the pandemic year of 2020-21.

According to the World Inequality Report 2022, the top 10 per cent of Indians had about 96 times more income on average than the bottom 50 per cent. The top one per cent of the population in India earns more than one-fifth of the total national income in 2021 while the bottom half earns just 13.1 per cent, said the World Inequality Report. The economic reforms and liberalization adopted by India have mostly benefited the top one per cent, the latest report for 2022 said.

Similarly, Oxfam International claimed that in 2021 India’s top 1 per cent owned about 77 per cent of the country’s wealth. Even among the India’s top 1 per cent, the two As of Indian economy -- Mukesh Ambani and Gautam Adani -- own roughly $90 billion wealth each, or about 1.4% of India’s total wealth.

Mukesh Ambani’s oil to retail conglomerate, Reliance Industries may be controlling about 3 to 4% of India’s GDP. Gautam Adani is India’s infrastructure king. These statistics amply illustrate the reality of “two Indias”. Indeed, there are two faces of India-- a country where two Indians owning 1.4% of nation’s wealth, is complemented by the 60% of country’s population’s living on less than $3.10 a day, the World Bank’s median poverty line.

To bridge gaps of inequity, it could be helpful for India to do more work in its rural areas and in the informal sector. India’s large informal sector employs around 80 per cent of the labour force and produces about 50 per cent of GDP. A report issued by the State Bank of India (SBI) in October 2021 estimated that India’s informal economy has shrunk to 15-20 per cent of the GDP in 2020-21 from 52 per cent in 2017-18.

Formalisation of the economy is being achieved at a great cost and loss of opportunities for the vast majority of informal workforce. Formalisation of the economy is focused more on the widening of the tax net, rather than enhancement of job security, welfare and opportunities for people working in the unorganised sector and migrant labour.

Looking at the Centre’s books alone does not give the full picture of macro-economic health of the country. While the Centre’s fiscal deficit is fluctuating between 3.5 to 6.8% in the last five years, some states’ finances are in dire straits. States such as Karnataka, Andhra Pradesh, Rajasthan and Kerala have overshot their annual fiscal deficit targets by a wide margin. The aggregate fiscal deficit of the states for 2020-21 is budgeted at 2.8% of the GDP. This is expected to go completely off-track owing to the pandemic and the spending spree of some states.


Despite the rapid economic growth post-liberalisation, unemployment is still an issue in both rural and urban India. The fast rate of economic growth has left unskilled workers behind, and they have struggled to find work in growing industries. In 2017, the official unemployment rate was just below 5%. However, a report by the OECD found over 30% of people aged 15-29 in India are not in employment, education or training (NEETs).

Concentration of prosperity in the hands of a few people, unskilled and under-privileged people being left behind and the neglect of the informal sector may perhaps push India forward as a weak nation instead of making it a superpower.

(V. Venkateswara Rao is an alumnus of IIM-Ahmedabad and a retired corporate professional. Views are personal)

(This was first published in National Herald on Sunday)

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