South Asian Affairs
- Jan 21, 2025
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India's Household Consumption is Broken
A SIMPLIFIED EXPLAINER
SYMPTOM: Stock market is going down.
DISEASE: The Indian government has released the Household Consumption Expenditure Survey 2023-24, which shows that inflation-adjusted growth in household consumption is only 3.5% Y-o-Y.
WHAT DOES THIS MEAN?
1. Non-Export Economy: India is a domestic consumption-driven economy. We don’t have any net exports (exports minus imports). Rather, we only run a slight trade deficit every year. So, in net effect, we don’t sell anything to the world. Indian companies sell their goods and services mostly to our own people in India.
2. Overconfidence in Domestic Consumption: India has not cared to build an export-competitive economy because we kept saying we have 140 crore consumers in India, so our companies don’t need to sell to the rest of the world. Rather the world needs us.
3. K-Shaped Stagnation: If the top 10 crore (100 million) high-income Indians (Indian corporates + their employees) want to remain rich, they have to ensure that the remaining 130 crore (1.3 billion) Indians at least have enough money to buy the goods and services that the top 10 crore sell to them.
4. Raghuram Rajan: Last week in Davos, former RBI governor Raghuram Rajan said in an interview (available on YouTube) – “Something is broken in India, and to me it looks like household consumption is broken.”
5. Arvind Subramanian: One year ago, former Chief Economic Advisor, Arvind Subramanian said: “It is absolutely mystifying to me that India’s GDP is growing at 7.5%, while household consumption is at 3%. I simply cannot understand this. The numbers don’t add up.”
6. Consumption is Our Holy Grail: Household consumption constitutes roughly 60% of India’s GDP. Remaining 40% comes from government expenditure (salaries, subsidies, social transfers etc.) and private and public investment in infrastructure and capital goods.
For the GDP to grow at 7.5% – if the household consumption remains at 3% – the public and private investment in India will roughly have to grow by 15% yearly. That is impossible without accumulating high debt and very high inflation, if consumption continues to stagnate at low levels.
7. Rathin Roy: Three days ago, on his X account, former Member of the PM’s Economic Advisory Council, Rathin Roy, re-posted his 8-year old article with the comments: “Every sentence I wrote then, still holds true today.”
The essence of his article was: “Inclusive growth (means, growth for 140 crores, and not 10 crore Indians) is the only solution. But we have made a fundamental policy choice that only a few people will benefit from India’s growth story, while the rest will be helped by government intervention.”
8. Abhijit Banerjee: On October 14, 2019, during his press conference at MIT campus after the announcement that he had won the Nobel Prize for Economics, Abhijit Banerjee said:
“The National Sample Survey data shows that the household consumption in India between 2014 and 2017 has slightly gone down (means, people are getting poorer and consuming less).
And that's the first time such a thing has happened in many, many, many, many, many years, so that's a very glaring warning sign."
9. Consumption Report Rejected: On 15 Nov. 2019, the government of India rejected its own Household Consumption Survey report 2017-18, citing discrepancies. At that time, this large-scale survey was conducted once every five years in India.
The report was, however, leaked in the press, and the press said that household consumption fell by 3.7% in 2017-18 compared to 2011-12, marking the first-ever such fall in over four decades.
10. No Survey for the Next 5 Years: Once the 2017-18 report was junked, no survey was conducted for the next five years. Then in 2022-23, the government changed the methodology of the national household consumption survey, which makes it difficult to compare data.
Nevertheless, data from the latest 2023-24 report (it is now annual) is cited at the very top of this post (above point # 1).
11. Asian Paints and Nestle India: Last year, Asian Paints MD Amit Syngle said that India’s GDP growth and the consumption growth of paints seem to have lost their correlation – which was historically always there.
Nestle MD Suresh Narayanan said: “The middle class of the country seems to be shrinking.” (In other words, some people from the middle income group are slipping into lower income group.)
CANCER IS OLD, SYMPTOMS APPEARING NOW
In the pre-Budget week and ahead of the RBI Monetary Policy meeting, financial journalists and fund managers are asking for liquidity infusion into the economy to increase credit (loans) and revive demand.
What will new loans do for the average consumer who is already over-leveraged or defaulting on his existing unsecured loans, and struggling to even maintain his basic household consumption of dal-roti?
Liquidity infusion and reduction in capital gains tax etc. can at best be temporary emergency measures. These will not cure the cancer of “non-inclusive” (K-shaped) growth and the artificial stock market boom not backed by real economic growth.
To revive household consumption, you have to focus on skills, education, and jobs for the vastly under-employed (under-utilized) hundreds of millions of youth in India who are wasting their talent and potential in farm labour and construction labour type of unskilled activities, or simply standing in queues for non-existent government vacancies.
This is the structural change in policy framework to promote inclusive growth that the economists have been recommending for years, but nobody listened to them while the sun was shining.
India's Household Consumption is Broken
A SIMPLIFIED EXPLAINER
SYMPTOM: Stock market is going down.
DISEASE: The Indian government has released the Household Consumption Expenditure Survey 2023-24, which shows that inflation-adjusted growth in household consumption is only 3.5% Y-o-Y.
WHAT DOES THIS MEAN?
1. Non-Export Economy: India is a domestic consumption-driven economy. We don’t have any net exports (exports minus imports). Rather, we only run a slight trade deficit every year. So, in net effect, we don’t sell anything to the world. Indian companies sell their goods and services mostly to our own people in India.
2. Overconfidence in Domestic Consumption: India has not cared to build an export-competitive economy because we kept saying we have 140 crore consumers in India, so our companies don’t need to sell to the rest of the world. Rather the world needs us.
3. K-Shaped Stagnation: If the top 10 crore (100 million) high-income Indians (Indian corporates + their employees) want to remain rich, they have to ensure that the remaining 130 crore (1.3 billion) Indians at least have enough money to buy the goods and services that the top 10 crore sell to them.
4. Raghuram Rajan: Last week in Davos, former RBI governor Raghuram Rajan said in an interview (available on YouTube) – “Something is broken in India, and to me it looks like household consumption is broken.”
5. Arvind Subramanian: One year ago, former Chief Economic Advisor, Arvind Subramanian said: “It is absolutely mystifying to me that India’s GDP is growing at 7.5%, while household consumption is at 3%. I simply cannot understand this. The numbers don’t add up.”
6. Consumption is Our Holy Grail: Household consumption constitutes roughly 60% of India’s GDP. Remaining 40% comes from government expenditure (salaries, subsidies, social transfers etc.) and private and public investment in infrastructure and capital goods.
For the GDP to grow at 7.5% – if the household consumption remains at 3% – the public and private investment in India will roughly have to grow by 15% yearly. That is impossible without accumulating high debt and very high inflation, if consumption continues to stagnate at low levels.
7. Rathin Roy: Three days ago, on his X account, former Member of the PM’s Economic Advisory Council, Rathin Roy, re-posted his 8-year old article with the comments: “Every sentence I wrote then, still holds true today.”
The essence of his article was: “Inclusive growth (means, growth for 140 crores, and not 10 crore Indians) is the only solution. But we have made a fundamental policy choice that only a few people will benefit from India’s growth story, while the rest will be helped by government intervention.”
8. Abhijit Banerjee: On October 14, 2019, during his press conference at MIT campus after the announcement that he had won the Nobel Prize for Economics, Abhijit Banerjee said:
“The National Sample Survey data shows that the household consumption in India between 2014 and 2017 has slightly gone down (means, people are getting poorer and consuming less).
And that's the first time such a thing has happened in many, many, many, many, many years, so that's a very glaring warning sign."
9. Consumption Report Rejected: On 15 Nov. 2019, the government of India rejected its own Household Consumption Survey report 2017-18, citing discrepancies. At that time, this large-scale survey was conducted once every five years in India.
The report was, however, leaked in the press, and the press said that household consumption fell by 3.7% in 2017-18 compared to 2011-12, marking the first-ever such fall in over four decades.
10. No Survey for the Next 5 Years: Once the 2017-18 report was junked, no survey was conducted for the next five years. Then in 2022-23, the government changed the methodology of the national household consumption survey, which makes it difficult to compare data.
Nevertheless, data from the latest 2023-24 report (it is now annual) is cited at the very top of this post (above point # 1).
11. Asian Paints and Nestle India: Last year, Asian Paints MD Amit Syngle said that India’s GDP growth and the consumption growth of paints seem to have lost their correlation – which was historically always there.
Nestle MD Suresh Narayanan said: “The middle class of the country seems to be shrinking.” (In other words, some people from the middle income group are slipping into lower income group.)
CANCER IS OLD, SYMPTOMS APPEARING NOW
In the pre-Budget week and ahead of the RBI Monetary Policy meeting, financial journalists and fund managers are asking for liquidity infusion into the economy to increase credit (loans) and revive demand.
What will new loans do for the average consumer who is already over-leveraged or defaulting on his existing unsecured loans, and struggling to even maintain his basic household consumption of dal-roti?
Liquidity infusion and reduction in capital gains tax etc. can at best be temporary emergency measures. These will not cure the cancer of “non-inclusive” (K-shaped) growth and the artificial stock market boom not backed by real economic growth.
To revive household consumption, you have to focus on skills, education, and jobs for the vastly under-employed (under-utilized) hundreds of millions of youth in India who are wasting their talent and potential in farm labour and construction labour type of unskilled activities, or simply standing in queues for non-existent government vacancies.
This is the structural change in policy framework to promote inclusive growth that the economists have been recommending for years, but nobody listened to them while the sun was shining.
