Government's Policy Re-prioritisation to Spur Consumption
The Indian government is prioritizing policies to boost consumption amidst slowing growth engines. The economy's main components include household consumption, private investment, government expenditure, and net exports. Among these, only government expenditure has shown robust growth, largely due to infrastructural initiatives and interest-free loans to states.
Government Expenditure and Challenges
- Government capital expenditure has increased, but the growth rate is slowing down compared to the post-COVID-19 period.
- Other developmental and defense priorities are also demanding government funds.
Private Investment
- There is a need for the private sector to increase its investments.
- Current investment growth is insufficient for achieving desired economic growth rates of over 8%.
- Industrial capacity utilization has not surpassed 80% since March 2011.
Net Exports and Global Challenges
- Net exports are struggling due to global trade uncertainties and U.S. tariffs on Indian imports.
- Demand from abroad is declining, emphasizing the need for increased domestic consumption.
Strategies to Boost Household Consumption
There are two methods to encourage spending: increasing incomes and reducing prices.
- GST Rate Reforms: Effective from September 22, aimed at reducing prices.
- According to FICCI, more than 75% of rural monthly expenditures will attract nil or 5% GST rates, up from 56%.
- For urban areas, the proportion increased from half to two-thirds.
- Income Tax Reduction: Initiated in Budget 2025, aiming to increase disposable income.
Income and Wage Dynamics
- People are more likely to save than spend due to reduced income-tax rates.
- Disposable income could increase if companies raise wages, but labor oversupply and skill deficits are hindrances.
Conclusion
With global factors impacting other growth drivers, boosting consumption remains crucial yet challenging. It requires significant fiscal investment to overcome high inertia and stimulate economic growth.
