THE SLIDE IN RURAL DEMAND
The government seems to be in a hurry to reject the findings of a survey on household consumption expenditure for July 2017June 2018, which showed consumer spending falling for the first time in over four decades. However, all indicators seem to suggest continuing consumption distress. According to media reports, the survey— ‘Key Indicators: Household Consumer Expenditure in India’, prepared by the National Statistical Office (NSO)—which was withheld by the government and leaked to the media, found that average monthly expenditure fell 3.7 per cent to Rs 1,446 in 2017-18 from Rs 1,501 in 2011-12. In villages, consumer spending declined by 8.8 per cent in 2017-18, while in cities, it rose by 2 per cent over six years. The last time the NSO reported a fall in consumption in real terms was in 1972-73, due to a global oil crisis, reports added. ‘Slow growth, or a decline in consumption, can be a worry for the economy as it is directly reflected in low GDP numbers, leading to negative sentiments among consumers, businesses and investors,’ notes a Care Ratings report.
Meanwhile, market research firm Nielsen said on November 14 that consumption in rural India fell to a seven-year low in the second quarter of the current fiscal. Consumption in rural areas was lower than in urban areas, underscoring the pain in the agricultural sector, rainfall deficiency in some parts of the country and stagnant rural incomes. Factors like these have also choked household savings. The country’s gross savings dropped from 31.1 per cent of GDP in 2015-16 to 30.5 per cent in 2017-18, with
household savings dropping from 23.6 per cent of GDP in 2011-12 to 17.2 per cent in 2017-18. FMCG companies are already feeling the pinch. For instance, Sanjiv Mehta, CMD of Hindustan Unilever, has said that the reason for the moderation in FMCG growth rates is the slowdown in rural areas, which is sharper than in urban areas. Low food prices till recently left very little disposable income with farmers. Even the recently witnessed rise in food inflation may not result in higher incomes for farmers as the price rise is largely due to speculative activity in the market that would end up benefiting hoarders and black marketers.
For its part, the government has said that it has withheld the NSO survey report because it had found certain deficiencies in it, and has therefore referred the report to a committee for review. This has fuelled speculation that the government does not want to make these results public. Moreover, the Advisory Committee on National Accounts
Statistics had recommended against a change in base for the GDP series to 2017-18 from 2011-12, as it was not considered to be an “appropriate year”.
“Rising unemployment numbers are getting reflected in consumption,” says Biswajit Dhar, a professor with Jawaharlal Nehru University. “Large scale retrenchment is taking place in the corporate world. We have got into a vicious cycle.” According to him, lower demand has stopped companies from holding more inventories, affecting production and hitting jobs. The auto industry has reportedly shed 350,000 jobs between April and August this year. Meanwhile, bank interest rates remain high. This calls for measures to stimulate demand. “It is not wise to think that the private sector will help kickstart the economy or that corporate tax cuts will bring in additional investments. We have got into a structural problem, which demands higher public investment,” Dhar adds. ■