2 min read.Updated: 07 Dec 2020, 10:01 PM ISTLivemint
Indian consumption was already in a slump when covid crunched our economy. Consumer confidence remains abysmal. It’s time the government focuses on a broad demand revival
After private investment began to dip more than half a decade ago, our economy’s reliance on consumption for expansion went up. With less money being ploughed into productive capacity than during India’s last boom, consumer spending was thought likely to slump too, though with a long lag. Signs of this seemed apparent in the National Statistical Office’s (NSO’s) Consumer Expenditure Survey for 2017-18, details of which were leaked last November before it was binned by the government for alleged divergences from other data sets. Now, a report in Business Standard suggests that India’s chief economic adviser K.V. Subramanian has sought the release of that study’s findings for purposes of analysis. The most significant of these was household expenditure having fallen in 2017-18 for the first time in over four decades. While this was at odds with indirect indicators of the period available to the Centre, it was the result of an official periodic survey done on a sample selected by the NSO to be representative of all Indian homes. Even if it did have some flaws, it broadly seemed to confirm a downturn in consumption. And then came this year’s covid crisis, which crunched what was already sagging.
For analysts to assess spending patterns and trends across the country, it is imperative that all survey reports are published, even if late. Discrepancies, if any, can always be debated. According to snapshots that appeared in the media of the 2017-18 study, average expenditure was driven down by weak rural demand. It seems likely that a compressive role was played by the twin shocks of demonetization and a somewhat chaotic adoption of our goods and services tax, with informal commerce hit particularly hard by both. A consumption slide after that might well have dragged overall growth down as well. Last fiscal year saw our national output rise just 4.2% over 2018-19, a deceleration that marked an 11-year low. Still, city consumers seemed relatively spend-happy—till coronavirus laid siege. The pandemic’s impact on urban consumer confidence is captured by the Reserve Bank of India’s periodic survey of the same. On a “current situation index" designed with 100 as its neutrality point between optimism and pessimism, its latest reading was 52.3 for November. While this was not as bad as September’s dive to 49.9, its lowest ever, it is alarming that urban Indians were so gloomy even in the midst of a festive season bounce. Anecdotal impressions of a revival apart, sentiment does not seem to have recovered as nicely as hoped. This could be ascribed to perceptions of the general economic scenario, with household incomes under stress, job prospects grim and inflation uncomfortably high. By the central bank’s survey, households retained an optimistic outlook on the situation a year from now, though.
Whether 2021-22 will get consumers cheerfully opening their wallets may depend on what the government does in favour of direct demand generation, an effort that it put off for later after the covid outbreak. The obvious way about it would be to boost public spending in a manner that puts money in people’s hands, especially those who are more likely to spend rather than save it. Consumption, after all, accounts for three-fifths of our economy. Its uptick could prompt private investment, too. The Centre’s covid response so far has largely been a mix of food relief and credit provisions. Worthy as these are, it might be time to shift focus to Keynesian outlays. It would reduce the risk of India becoming a modern-day example of what Keynes called “the paradox of thrift".