Message for managers of other people’s money: Read the economy right

livemint.com:

Late last weekend, I happened to meet someone who makes his money by managing other people’s money (OPM). He asked: “Why did the Bharatiya Janata Party not get a majority in the Lok Sabha, despite the economy growing by more than 8%?" A simplistic answer to this would be that many voters don’t take economic data into account before voting. A slight improvement would be that India’s 2023-24 growth figure was declared only on 31 May, and by then, six of the seven electoral phases were over.

But it would be disingenuous to suggest that while voters may not follow economic data, they don’t have a good idea of how the economy is affecting their daily lives. How badly is inflation impacting them? Is their income going up? Are there enough job opportunities? Most voters may not have exact data on their fingertips, but they can still smell it. And that’s something that OPM wallahs need to understand.

While India’s economy grew at 8.2% in 2023-24, this growth has been largely inequitable. To see this, those in the OPM business need to look beyond the economic growth figure. Take the case of private consumption expenditure.

Over the years, it has formed around 55-60% of India’s economy. In 2023-24, it grew 4% (adjusted for inflation), the slowest since 2002-03 if we ignore the pandemic year of 2020-21. This can be seen in other data as well.