India's Economic Reality And The Hype

From connectivity woes to infrastructure advancements and the startup boom, there is a gulf between claims and reality in India's economic landscape, points out Devangshu Datta.

It has been an education watching the T20 World Cup and the Euro on my mobile. I've been travelling, in North India and in Bengal, and often using 4G.

Connectivity has ranged from okay to terrible, making streaming a challenge.

I use multiple service providers and devices and there seem to be few places where all three private service providers offer fast, stable connectivity.

Using a VPN to stream the Euro for free is a joke given the latency.

Apart from streaming sports, another hobby that demands low latency is playing Blitz Chess.

That too suffers from lags and disconnects and I can't play bullet (60 seconds/game) at all.

On occasion, when I've had to make Zoom/ Meet/Teams calls, I've had to switch off video.

By global standards, digital India's 4G networks aren't up to the mark.

This lacuna in telecom infrastructure is part of an endemic problem: Making large claims where the reality doesn't match hype.

India claims great airport connectivity, but terminal roofs are collapsing.

India claims excellent road networks but bridges give way and road surfaces crack within months of inauguration.

India also has fancy new trains, which run slower than the earlier versions, and the technologically advanced safety features don't prevent accidents.

Even berths collapse.

In the interest of generating more revenues, the Railways have also reduced lower-class capacity, causing overcrowding.

The stock market and startup boom has funnelled large investments into an economy that is supposedly growing at great speed.

But I wonder how much of that is hype, and how much of the investment is dependent on a lack of alternative investment avenues.

Starting with demonetisation and the goods and services tax (GST), policy changes have led to a shrinking of the informal economy.

This has shown up in the micro, small and medium enterprises sector, which has shrunk in size, and struggled to generate enough activity to provide employment.

That is why unemployment trumped religion in resonance in the elections.

Demonetisation and GST have also led to formalisation, and I suspect the formalisation masked the extent to which the informal economy compressed.

Prior to November 2016, the informal economy was somewhere around 35-40 per cent the size of the formal economy.

I don't know if any serious attempt has been made to gauge the size of the informal economy circa 2023-2024, but I suspect it's a lot smaller in relation to the formal economy.

Demonetisation caused a collapse in small businesses, and the GST launch in mid-2017 led to further pressures on businesses that couldn't handle the paperwork.

Covid and the lockdowns led to more compression.

The informal businesses that could transition to GST did so and joined the formal economy.

This resulted in a bump-up in formal GDP data, while the shutdowns of informal businesses have shown up in unemployment, rural distress, and a K-shaped recovery.

Money -- household savings funnelled through systematic investment plans -- has gone into the stock market because folks who would have earlier looked to open small businesses don't see opportunities.

That's a working hypothesis which gels with anecdotal evidence. (Digitisation certainly helped by making it easier to invest)

Watching the World Cup, the Euro and the T20 World Cup has also meant looking at a lot of ads. The composition is revealing.

There's an obsession with bodily functions, or personal care as it's known in management circles.

Feminine hygiene products, toilet cleaners, shaving kits, condoms et al seem to occupy centre stage.

There are no big-ticket white goods on display. There are no mobiles, even though India is a big assembler of handsets.

There are no cars. There are no fintechs, or other startups offering innovative services, and few mutual funds or credit card/ banking service providers.

The ads are all old economy, small-ticket, and by brands, which have been around for decades.

This contrasts with earlier years when sports channels were flooded with ads for mobiles, fintechs, consumer electronics, vehicles, crypto and e-commerce/ quick commerce services.

I presume the ad mix reflects changes in consumption.

What's happened to all the startups and all the big-ticket consumption?

All this is anecdotal, of course, but it does paint a consistent picture of an economy where there's some distance between hype and reality.

Will that distance widen or contract?

Feature Presentation: Aslam Hunani/Rediff.com