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Can consumption spur revives Indian economy?


Recently released GDP data of the government allows a meagre 4.5% growth in the second quarter of the 2019-2020 fiscal year. The underlying reasons have been largely pointed out by several sources as demand, a create unorganized sector, etc.

Consumption and demand in Indian economy

  • As shown in the basic economic textbook, demand remains the most important factor for the growth of an economy along with another factor.
  • On account of high unemployment’s, low wages, then consumption has slid by a huge margin.
  • This esteem a reduction in the income of these citizens.
  • The rural economy frames the backbone of domestic demand, however, the leaked consumption data reveals a decline in the consumption expenditure in rural areas on several heads.

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Reasons for the slowdown:-

  • Shortage of funds with the investors on account of trapped money with government per fame of fiscal deficit.
  • High Non-Performing Assets.
  • low demand for consumption an account of low employment, low income.
  • The disturbed state of the economy, especially the unorganized sector after demonetization.

Way ahead:-

  • The government needs to realize the true fiscal deficit which is higher than 103% of the budgeted target for 2019-2020 in October.
  • This will need the RBI to buy bonds from the government, giving more space for new bonds being released.
  • The increased flow of cash in the cash drawn informal economy is the need of the house.
  • More and easy credit should be given.
  • Boost investor sentiment.
  • Invest in infrastructure building and employment-generating schemes such an MGNREGS.
  • Improve the employment rate and decreasing the fiscal rate and inflation.

Although there is a serve nee to look at for increase in consumption and cash flow, to simple injection of money in the economy will lead to stagflation and will have to be complimented with structural actions and reforms.

End note

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