PRIVATE CONSUMPTION EXPENDITURE STRONGEST DRIVER OF INDIA'S GROWTH, NO SIGNS OF EASING SOON

As an outlier in becoming the fastest-growing major economy in the world, a term often used in the case of India, private final consumption expenditure (PFCE) would be the least probable trigger for this transformation.

- NIVEDITA MUKHERJEE

And yet, this yardstick has emerged as the catalyst in a growth story that has few equals, enough for it to be flagged in the Finance. Ministry's Monthly Economic Report for October, as the strongest driver of growth on the demand side. While some commentators, as the Finance Ministry notes, like to believe that India's growth may soften soon with the PFCE likely to taper off early in the current year, so far, there is no evidence of that happening and going forward, as the Finance Ministry's anecdotal evidence suggests, it may not happen anytime soon.

First, reports bear out that the festive season is keeping the PFCE robust and second, the post- pandemic shift towards services in the consumption basket elicits a quicker supply response than goods. Third, the unemployment rate is steadily declining, there is increasing disposable income for spending purposes and the pre-pandemic moderating growth in housing prices has given way to stronger growth, which has generated a substantial wealth effect to induce spending by households who own houses. Besides, a similar wealth effect has emanated from increasing stock market capitalization.

The robust increase in consumption is evident in key high-frequency indicators registering strong growth in the April-September 2023 period compared to the corresponding period last year. Various reports also point to a surge in consumer spending during the ongoing festive season, reflecting buoyancy in demand which is also sustained by the unfolding latent demand that could not find an outlet during the pandemic-driven lockdown and is being seen as the most crucial factor boosting consumption demand. The unfolding is evident in the improvement of leading variables in the services sector, induced by the shifting composition of the consumption basket towards services in a lockdown-free environment. All services sector indicators have shown rising trajectories in the September 2023 quarter.