The Indian Domestic Consumption Must Pick up to Sustain Growth Momentum!

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  • It’s a matter of great satisfaction that of all the major economies in the world, the Indian economy has stood the test of time over the last few years delivering consistently on expected lines. The pandemic-induced meltdown, the ongoing Russia-Ukraine conflict, and the increasingly chaotic Middle East have rendered the global economy a volatile conundrum. That major economies like the United States of America and China are struggling to keep up pace with the growth prospects speaks volumes about the hardships facing humanity. Thus, as compared to other countries, the Indian establishment must pat their backs for introducing pragmatic fiscal measures back then when the situation demanded. The results are there for all to see.

ET

PC: Economic Times

  • The moot point to ponder over here is whether the growth being witnessed has certain undercurrents in the form of less than adequate domestic consumption that might eventually prove to impede the country’s growth aspirations. Let’s delve into the same. India’s festive season retail sales are a handy indicator to gauge the strength of private consumption, which is the largest constituent of GDP. This season, rural markets, for the first time after the outbreak of the pandemic, are showing signs of revival. Even ahead of the festive season, Nielsen IQ’s data on rural FMCG volume growth in the April-June quarter showed an increase of 4%, albeit on a contraction in volume the previous year. The momentum continued in the next quarter.
  • Yet, both FMCG firms and analysts are guarded in their outlook. Why? A recovery in rural consumption has been helped by a combination of subsidies extended by GOI and many states that have partially insulated consumers from energy and food shocks. Pump prices of petrol and diesel have remained unchanged since May 2022 and LPG prices have been slashed. Also, GOI has extended free benefits under PDS for another five years and some states have been providing monthly income support to targeted households. This support inevitably has a knock-on effect on discretionary spending, which is now apparent in rural consumption data. Going back to the guarded optimism on rural spending growth’s durability, the concern is the lop-sided recovery.

GDP

PC: Economic Times

  • The employment market shows that between the pre-pandemic 2018-19 and 2022-23, there are two divergent trends. There’s a marked increase in quantity indicators, the percentage of people in the job market has increased while the unemployment rate has declined. Therefore, more people are employed now. On the other hand, there’s a deterioration in the quality of employment. A big part of the incremental addition to jobs is in the self-employed category, while the share of regular-wage jobs has decreased. Worryingly, people have moved back to agriculture. Private consumption makes up around 60% of India’s GDP. Unless the purchasing power improves through better quality jobs in manufacturing and services, the economy will face challenges to grow faster over the medium term. The policymakers should focus on this aspect diligently.