Challenges in Consumption and the Road Ahead for Economic Revival
Context
The Finance Ministry and Reserve Bank of India expressed their concern for India’s slowing consumption demand.
- Apparently, it had hoped of a growth rebound in the second half of 2024–25.
Relevance:
GS-03 (Economy)
Dimensions of the Article
- The Consumption Details
- The New Challenges
- Way forward
The Consumption Details
- Consumption, being one of the key drivers of the economy, is seeing a downtrend.
- December’s GST collections, reflecting November’s transactions, dropped to a three-month low of ₹1.77 lakh crore. This marks a modest 7.3% year-on-year growth, the second-slowest pace in three and a half years. Domestic transaction revenues grew by 8.4%, while import-related revenues rose by just 3.9%.
- States like Uttar Pradesh and Gujarat, which are major consumer states, saw minimal growth. (UP: 1% and Gujarat: 4%)
- Meanwhile, a few northeastern states, especially Manipur, saw contractions.
- Urban consumption seems restrained, with high refund payouts and a post-Deepavali spending lull contributing to the decline.
The New Challenges
- Slowing Credit Growth: Bank credit growth has been on a downtrend for five consecutive months, signalling tighter financial flows.
- Core Infrastructure Output: Though infrastructure sectors grew by 4.3% in November, overall production was 3.3% lower than in October. Several sectors operated below capacity.
- Rising Input Costs: Factories faced the worst activity levels in 2024 during November and December, with inflation driving price hikes. This could further dent demand over time.
- Regional Disparities: Some states are grappling with poor revenue growth or even declines, adding to the uneven recovery in consumption.
Way Forward
- Tackling Inflation: The RBI should work on bringing more stability in the prices to encourage more spending and to reduce the burden on consumers.
- Boosting Rural Demand: Strengthen rural schemes and ensure timely wage payments to sustain resilience in rural consumption.
- Supporting Urban Spending: Introduce targeted measures to stimulate urban demand, such as credit relaxation or festive season incentives.
- Addressing State-Level Disparities: Investigate the reasons behind sluggish revenue growth in key states and implement corrective measures.
- Promoting Industrial Capacity Utilization: Support industries operating below capacity through fiscal incentives and demand stimulation programs.
Conclusion:
The Union Budget 2025-26 must focus on these pain points to restore consumption momentum and achieve sustainable growth.
