The coming long spell of demand drought

Excellent study material for all civil services aspirants - begin learning - Kar ke dikhayenge!

The coming long spell of demand drought

---

Read more on - Polity | Economy | Schemes | S&T | Environment

---

• Demand side analysis: A simple question that's presenting itself is - once everyone is vaccinated in India, will the economy's demand side (consumption) come back to normal, or not? In earlier crises - the 2008-09 recession or demonetisation 2016 - demand came back to normal rather quickly.
• What experts say: Present slump in demand is temporary, due to low mobility, low discretionary spends and poor supply position (due to lockdowns). Jobs have been lost and some reverse migration happened, but that's something that can reverse soon.
• Realistically speaking: The truth is that this pandemic has upset the entire consumption equation like never before. Various industries - auto, aviation, hotels, apparel - are seeing volumes of the 2015-2017 period. Such a huge gap cannot be bridged quickly at all. Experts predict that GDP growth would be quite lower than forecasts.
• The numbers: India's middle class has reduced now by 3.2 crore, and India has 7.5 crore more poor now compared to January 2020 (World Bank data, Pew Research). Who is poor? One with an income (or consumption) of less than $2 per day. Who is middle class? Betwee $10.01 and $20. (Dollars are PPP, 2011 prices)

1. Not just the blue-collar and informal sector /unorganised have been hit by job losses, but the white-collar category lost 43 lakh jobs as well.
2. The ESIC enrolments were down 24 % in 2020-21, compared to 2019-20.
3. The latest NPS data shows that central and state governments hired 27% and 21% less numbers [NPS - national pension system]

• Consumer sentiment: Researchers are finding that youngsters are worried about their prospects, and that's shaping their idea of consumerism. Savings are top priority now, even if incomes reduce! That's bad news for marketing people.
• Reverse migrants not returning: The crores who went back to villages in 2020, have not returned in full. The fear of the second wave has made many leave now, with firms like L&T losing 75000 workers in one month.
• Remittances hit: Many lakhs returning to villages is hitting urban to rural remittances, so source-markets are down. In small towns across India, hiring of blue-collar workers is sharply down. The excess of workers now in rural regions has led to higher unemployment rates. So rural wages for March 2021 were lower than that for March 2019 (pre-pandemic), for both agri and non-agri workers.
• Household debt: RBI numbers show that household debt to GDP ratio went from 35.4 % to 37.1 %. This doesn't include any non-institutional source like friends, relatives, moneylenders. 

1. Perhaps Indians have spent Rs.75000 cr to Rs.1 lakh crore in second wave of Covid, as out of pocket expenses
2. More than 30% of this is in rural India
3. All this is a mid-term to long-term consumption dampener (3-10 years)

• Summary: With no new consumers coming in, no new usage being created, and exising ones set to consumer far less, India is about to see its demand curve shift downwards for a few years now. 

Read more on - Polity | Economy | Schemes | S&T | Environment

Join UPSC Self Prep course | Online Course (PT Gurukul)  | Covid Special Course | Join PT courses

* Content sourced from free internet sources (publications, PIB site, international sites, etc.). Take your own subscriptions. Copyrights acknowledged.