Boosting Consumption

In order to revive India’s slowing economic growth, the focus should be on boosting consumption. As per reports, private investments (capex) have not picked up as expected, and government spending (capex) has also declined.

What are the current issues in the economy?

• Middle Class and Inflation: The middle class is hoping for relief from high food prices, which would lead to higher disposable incomes, especially in urban areas. In December, the inflation rate was 5.22%, largely due to a seasonal drop in food prices, like fruits and vegetables.
• The global economy in 2025 is expected to be unpredictable, with disinflation (slowing inflation) happening at uneven rates across different regions.
  • While disinflation could help households with limited financial resources, inflation pressures may rise due to uncertainty in the global economy. As a result, interest rate decisions may become more difficult and uncertain.
• Need of consumption:

• Private investment and manufacturing were identified as the main factors slowing down India's growth. This is the right time to spark economic growth by stimulating consumer demand. This, in turn, could lead to more investments in the economy.
• Private consumption (spending by individuals) is improving, largely due to the rise of e-commerce and quick commerce (q-commerce), where goods are delivered quickly. While this growth is good for competition, there should be no restrictive policies that hinder this trend.

What is Consumption?

• Consumption refers to the use or purchase of goods and services by individuals or households. When people buy food, clothing, electronics, or even pay for services like healthcare or education, they are engaging in consumption.
• It is the end-point of economic activity, as it involves the final use of products and services.
• Significance:
  • Consumption is a key driver of economic growth. In any economy, the more people consume, the more businesses produce and sell, which leads to higher demand and increased production.
  • A strong level of consumption signals that the economy is healthy, as people are confident enough to spend money on goods and services.

Role of Consumption in Economic Growth:

• Demand Creation: When consumers spend money, it creates demand for goods and services. This leads to businesses needing to produce more, which can drive investment in factories, technology, and infrastructure.
• Boosting Production and Employment: Increased consumption encourages companies to hire more people, increase production, and expand businesses. This can create jobs and help reduce unemployment.
• Economic Stabilizer: In times of economic downturns, when investment or business spending might be low, increased consumption can help keep the economy stable and prevent a recession.
• Government Policies: Governments often try to encourage consumption through policies that increase people’s disposable income, like tax cuts, subsidies, or lower interest rates on loans.