FM Sitharaman rejects K-shaped recovery theory for India, asks doubters to explain

Finance Minister Nirmala Sitharaman will present the interim Budget for 2024-25 on February 1.

Finance Minister Nirmala Sitharaman has rejected the theory that India's ongoing recovery is 'K-shaped', calling on those who doubt the economy's growth path to "stand up and say on what basis are they saying it".

Speaking to students of University of Delhi's Hindu College on January 25, the finance minister said that the public narrative at the moment is "quite vitiated", be it through mainstream media or social media, and questioned the credibility of those in the space.

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"Because we strongly believe in an open democracy, everybody joins in the conversation. But we really don't know how many of them are really coming in with authentic credentials," Sitharaman said.

"I'll just give you a random example – India is the fastest growing (economy), every sector of India is moving fast, the stock market is doing very well, companies that are listed whose accounts are available for public to view are doing well, higher dividends are being given. But in spite of that the narrative would be 'Indian economy is not very well, it is sick, there are some sectors which are suffering, there is a K-shaped recovery'. Hang on."

"For those who say all this, I want them to stand up and say on what basis are they saying it. But they won't be available for you to answer. They throw that idea and go away," she added, without taking any names.

Sitharaman's comments come at a time when the Indian economy is beating growth expectations, with the statistics ministry saying on January 5 that the GDP may grow by 7.3 percent in 2023-24, well above most expectations. However, the general consensus among economists is that India's post-pandemic recovery has been led by the upper class, with growth in demand for premium goods outstripping that for the mass-market segment. This pattern of recovery has been labelled 'K-shaped'.

Interestingly, the finance minister's rejection of the K-shaped hypothesis comes days after Soumya Kanti Ghosh, State Bank of India's group chief economic adviser, also said the theory was "flawed" and "prejudiced". Using a variety of data, including from income tax returns and orders placed on restaurant aggregator apps such as Zomato, Ghosh has claimed the real picture in the hinterlands is rather different than what popular opinion suggests.

Addressing the college students on January 25, Sitharaman asked them to access material and information from multiple sources and people instead of believing just one source.

While the finance minister said the economy is doing well, she did admit that more effort was needed to bridge the gap between what the industry requires and what the skills of fresh graduates.

"Two days ago I had an engagement with the industry… The only worry that the industry has, which is keen to recruit people is as they come out of universities, students are not ready to be straight deployed into a job. There is a gap between what is learnt in these universities and what is the expectation of industries," she said.

According to the finance minister, while one set of fresh entrants into the work force can get some technical training by industry groups, the skill gap faced by another set of entrants is being bridged by the government at the central and state level.

"In this, an addition which we have consciously brought in is training in international languages so that this very same person after a year or two can choose to move to countries where the prospects lie. I know Japanese was brought in this way. Chinese was given as an option, but I don’t know how many have taken it. There are specific concrete efforts being taken but we need to ramp it up and I concede that," she said.

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Commenting on India's food security, the finance minister said the country is nearly self-sufficient in most segments and even exports some of them despite a war, conflict in the Red Sea impeding trade and making movement of foodgrains challenging and costly.

"The future is that there are a lot of countries which want to have long-term understanding with India for food exports, processing of food, export of processed food, export of value added food. Immense possibility exists in agriculture. We are investing in R&D for agriculture," she said.