The need for measures to increase consumer demand to sustain GDP growth

The country's economic growth rate (GDP) for the June quarter of the current fiscal year 2021-2 has risen by 30.10 per cent year-on-year. However, the June quarter of the current financial year is 4.50 per cent lower than that of Coro's previous year. The country's June activity is expected to be higher in the first quarter of last financial year, given the slowdown in economic activity and a slowdown in economic growth to 5 per cent. The June quarter GDP contracted by 19.50 per cent compared to the March quarter of March 2011. Thus, the economic growth rate of 20 per cent in the June quarter of the current financial year is due to the low level of last year. The manufacturing sector's PMI for August has declined significantly compared to July, which gives a true picture of how strong the recovery seen in the June quarter is.

The country's economic growth rate does not depend on output from the manufacturing and service sectors but on demand and consumer confidence. Unless there is a steady growth in demand, strong growth in GDP is unlikely. One of the reasons behind the rise in GDP in June was the resumption of previously outstanding demand. Once this demand is met, it will not have a direct impact on the manufacturing and service sectors. The manufacturing sector PMI for August indicated a decline in demand. Manufacturing activity is reported to be slowing down not only in India but in many Asian countries, including China.

The country is seeing a wide gap between business sentiments and consumer sentiments. Business sentiment has risen in recent months, but consumer sentiment is still weak. The impending danger of a third wave after the second wave of Corona has weakened the minds of consumers. The country's GDP figures are prepared keeping in view the state of the organized sector.

The position of the unorganized sector is not reflected in the GDP figure. The initial GDP figure for the June quarter is based on the quarterly results of a few of the companies that have released their financial results. The operations of unlisted companies do not find a place in the preliminary figures. Corona has had a much more serious impact on the unorganized sector and small and medium enterprises in the country than the organized sector. Not only is small industry a major contributor to the country's economy, but retail demand in the unorganized sector is much higher than in the organized sector.

According to economists, the recovery seen in the June quarter was not due to an increase in government spending but to an increase in private sector investment. Private investment is expected to decline in the coming months, which will have a direct impact on consumer demand.

Rising petrol-diesel prices are raising concerns among the government. If the country's financial position is to be sustained, the government must refrain from taking steps that would increase the fiscal deficit. At its last meeting, the Reserve Bank avoided changing the repo rate. Measures to curb rising inflationary pressures remain necessary. Higher oil and commodity prices have weighed on domestic inflation.

In the first week of August, the Reserve Bank of India (RBI) kept key interest rates unchanged at the end of a three-day monetary policy review meeting. Corona maintained an accommodative stance to support the economy amid relative tensions. The RBI's Monetary Policy Committee (MPC) did not change the repo rate at its seventh consecutive meeting. To support the economy, the Reserve Bank has cut the repo rate by a total of 20 basis points since February 2016. Repo rates are being kept low to encourage investment to boost consumer demand. The country's retail inflation for the current financial year, which was earlier projected at 7.10 per cent, has been raised to 7.50 per cent. Thus high inflation can be a major obstacle to growth in consumption.

The PMI survey report for the manufacturing sector in August found that new recruitment of employees by industries remained stable at the July level in August, while layoffs in the service sector continued. Thus, it would not be wrong to say that the poor picture of recruitment will increase the unemployment rate in the country. The first condition for increasing consumption demand is strong employment conditions. Unless there is enough money in the hands of the people to spend, the picture of demand will look bleak and its direct effect will be reflected on the GDP figures.