HYDERABAD: Move over ‘earn more, spend less,’ adage. Turns out, the more you spend, the healthier the country’s economy will be.
Latest data released by the Central Statistics Office on Monday shows that household spend accounts for more than half of the country’s Gross Domestic Product (GDP). The rest comprises private investment spending, government spending, value of exports minus imports.
Though households are spending big, the pace of growth in the first quarter of the current fiscal fell lower than the corresponding last quarter and marginally higher than the previous year.
“Private consumption continues to remain less than 60 per cent of the GDP suggesting low aggregate demand conditions,” said Debopam Chaudhuri, chief economist and vice president, ZyFin Research. Higher consumption leads to even higher production of goods and services, thus keeping the economy fit and healthy. Unlike an export-led Chinese economy, India is dependent on domestic consumption. So the more we spend, the more we grow. Now that the GDP has grown slower than anticipated, it may put pressure on RBI to cut rates and spur consumer spending.
In the agriculture sector, rice, wheat, coarse cereals and pulses output posted de-growth during the rabi season, which ended in June, while in commercial crops, oilseeds production fell significantly. It was one of the reasons why July retail inflation was high and there could be a spillover effect in the months to come. During April-June, trade, hospitality, transport and communication sectors fared well.
Within construction, production of cement and steel consumption grew indicating the revival of real estate. But private investments saw a marginal dip and continue to be on a fragile footing. According to Crisil, high consumption growth will improve capacity utilization and revive private investment.