THE GIST of Editorial for UPSC Exams : 14 MAY 2019 (Reviving demand is the need of the hour (The Hindu))

Reviving demand is the need of the hour (The Hindu)

Mains Paper 3: Economy
Prelims level: PFCE
Mains level: Economic growth and Development


  •  Indian economy there are two major engines for growth consumption and investment.

  •  Exports are not really our forte and can supplement though never lead growth. Government spending, though important, can be inflationary. Therefore the importance of consumption has to be underlined.

  •  In fact the demographics of the country indicate that there is potential for people to move up the income chain thus leading to enhanced consumption.

  •  As long as there is upward mobility the pace of consumption will continue.

Let us look at the numbers

  •  As per the latest data from CSO, private final consumption expenditure (PFCE) accounts for 57 per cent of GDP and hence is the leading sector. Growth in PFCE at current prices has slowed down from an average annual growth rate of 15.7 per cent during 2009-10 to 2013-14 to 11.9 per cent in the 2014-15 to 2018-19 period. This is quite a sharp drop and the near stagnation in this growth rate calls for introspection.
  •  The lower consumption picture today is reflected in the low auto sales growth which persisted even in April. Some of the FMCG companies that have announced their results have indicated sluggishness in growth in sales this year.
  •  At the level of IIP growth consumer goods growth has not been impressive.
  •  Durables have increased by 5.3 per cent (0.8 per cent) and non-durables by 3.8 per cent (10.0 per cent) in FY19. Quite clearly there are few signs of buoyancy in growth here.
  •  In fact, within the durables segment, a major thrust has come from computers which is more office oriented than household personal expenditure.
  •  The TVs and AC segments have witnessed negative growth.

The jobs factor

  •  As the last five-year period had witnessed this declining trend the answer would be found in the now much debated issue of low-job-high GDP growth scenario.
  •  The pace of employment in the last few years has slowed down which has reduced the purchasing power of households.
  •  This also fits in with the more recent controversy of the GDP numbers using data on 5 lakh companies of which 36 per cent are missing. Therefore GDP growth has been reckoned at a higher level but has not been commensurate with employment creation.
  •  While it is true that jobs have been created in certain sectors like retail, e-commerce, and construction, the overall spending power tends to get restricted more to the subsistence level where purchasing power is limited to non-discretionary items with the only exception being mobile handsets which have a strong import component.
  •  In the private organised sector corporate performance has been buffeted by various reforms in the form of demonetisation and GST.
  •  This has led to lower increases in income which had impacted consumption growth as discretionary expenses tend to get impacted more.
  •  Also with the SME segment being affected by both these reforms, there has been a tendency for both employment and income levels to get affected.
  •  There has, however, been some compensation on the government side where the two measures of OROP for the defence forces and pay revisions for both central and state government officials have increased purchasing power.
  •  This has definitely helped to maintain consumption growth in the double digit level but has not been sustained as saturation sets in after a point of time. but quite clearly the big push that is required is not there.

The rural drag

  •  The rural story has not played out for successive years. While the government announced laudable increases in MSPs in 2018-19, the farmers did not receive the same as there are issues when it comes to government procurement which is primarily in rice and wheat by the FCI.
  •  Therefore, a good harvest for farmers did not lead to higher prices but lower outcomes which affected spending power. This was responsible for lower demand during the traditional post-harvest festival season which in turn led to the build-up of inventory by auto manufacturers in particular.
  •  The level of inequality has increased in the country which has led to saturation in consumption standards.
  •  This is the classic Piketty situation where growth in the last few years has tended to get concentrated at the higher levels where incomes especially from capital has increased sharply thus exacerbating the difference between the lower and higher income levels.

Way forward

  •  It may be recollected that the MGNREGA scheme had helped to an extent in boosting consumption of non-staples as this was additional income received that was used for higher value consumption food articles as well as discretionary spending.
  •  Such a direct push can be the immediate stimulus.
  •  In the normal course it would take a few years for the consumption cycle to pick up and real economic growth is a pre-requisite where adequate jobs are created so that purchasing power is generated.
  •  Therefore, the consumption led growth story will be gradual and circular with higher growth leading to more employment and income which spurs consumption which in turn fosters growth.
  •  This would be the circle of growth in the next five years.

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Prelims Questions:

Q.1) Consider the following statements regarding Anthropological Survey of India:
1. It is the only research organisation to pursue anthropological research in a Governmental setup.
2. It is involved with studying of tribes and preserving of human skeletal remains from ancient period.
3. It functions under the Ministry of Science and Technology.

Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 2 only
(c) 3 only
(d) 1, 2 and 3

Answer: A
Mains Questions:
Q.1) The deceleration in consumption growth over the last five years is a result of lack of jobs, rural distress and growing inequality. Critically explain.

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