Building A Growth Ecosystem

India has emerged as one of the fastest-growing economies in the world. But there is a need to boost private consumption in a nuanced manner that motivates inclusive, equitable growth

- SANJEEV KRISHAN

INDIA HAS EMERGED as the fastest-growing large economy in recent years, with consumption being one of the main growth drivers for several decades. However, the momentum of consumption now appears to be slowing down-we recorded a growth of about 4% in financial year 2023-24 (FY24), as against 5%+ since FY10 (with the exception of FY21). This highlights a decoupling between consumption and GDP growth, with public capital expenditure taking the lead. If we peel back the layers of this consumption story, we see that the urban rich continue to drive private consumption, while rural demand has largely stagnated.

According to the Household Consumption Expenditure Survey 2022-23, urban per capita consumption is about 71% higher than that of rural areas (compared to about 84% in FY12). As India continues to cement its path towards a Viksit Bharat, this gap needs to be bridged on priority.

Covid-19 and geopolitical challenges impacted GDP growth globally. While the US and China have explored direct cash transfers and reduced borrowing costs to boost consumption, this has presented its own challenges, including higher debt-to-GDP ratios. India, on the other hand, has refrained from fiscal measures of this kind and has focused on building infrastructure to enable long-term sustainable growth. However, what remains inevitable is the need to boost consumption even in the short term. Considering India’s inherent diversity, a nuanced approach that motivates inclusive and equitable growth is needed—one that supplements the government’s focus on infrastructure development and supports the manufacturing sector as well.