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There has been a lot of emphasis on Infrastructure development for reviving economic growth, however the more potent tool that is consumer demand has not got much attention.
How is consumer demand tracked and what are its recent statistics?
Reserve Bank of India’s Survey-based index tracks consumer demand. Its latest round shows an increase for January month as compared to the data from November but it is still below its pre-pandemic level as was in March 2020. Any reading above 100 indicates net optimism but it is still below RBI’s expectations.
Why should focus also be laid on Consumer demand while making macroeconomic strategy?
Since past two years consumer demand and the global health crisis have been moving parallel.
Government’ huge capital expenditure of ₹5.5 trillion in 2021-22 will take some time to have some noticeable impact on index readings because of a typical lag. Though infrastructure creation is valuable for long term growth but government must also support consumer confidence. As this will help Centre in its strategy of ‘crowding in’ private investment.
Consumer demand will lead to an increase in private investment due to increased capacity utilisation and set off a self-reinforcing cycle of income generation across the country.
Large outlays on public projects are known to have major multiplier effects on the earnings of people at large, but much depends on the pace at which this is done as these projects take very long to execute.
What is the way forward?
Although Economic Survey this year cited record corporate profits and raising of risk capital which are positive signals but it would be advisable that the government should keep a track on RBI’s index.
If consumer demand does not pick up as expected even in the coming year, Government may need to give some direct stimulus for strengthening the supply side measures.
Source- This post is based on the article “Our stimulus should act on consumer confidence” published in Live Mint on 15th Feb 2022.
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