A Stalled Growth Engine

Context: The government of India needs to revive the private consumption for the growth of Economy of nation in post-pandemic. 

Concerns over prospects of India’s growth engines

• Stagnation in private consumption demand: The private final consumption expenditure for 1^st quarter of GDP was at 55%, same levels as in 2020.
  • Depending on private consumption for GDP growth is unsecure as it is driven by build-up of household debt.
  • Pandemic disruption on demand: Scarring from pandemic will have affected those at lower levels of income distribution much more than those at top, reducing overall demand stimulus since it is that section that consumes more of its income.
• Rising debts: As per All India Debt and Investment Survey report published by NSSO, the average debt of rural and urban households increased by 84% and 42%, respectively, in between 2012 and 2018.
  • Debt-to-assets ratio deteriorated sharply, indicating a greater fragility to household balance sheet.
  • Pandemic worsening debts: Economists at State Bank of India project that it has further doubled in three years since the AIDIS data was collected in 2018, given the exigencies of the pandemic.
• Private investment is under fall since 2011-12.
• Crisis in non-banking financial companies: It closed one major conduit for credit to households.

Conclusion: The government needs to revisit its broader growth strategy in the context of these revelations about private consumption, household savings, and debt. Integration into trade and new trading agreements can be new engines of growth.