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Consumer in Post-Corona India

Consumer in Post-Corona India

- by Priyanka Dua, Young Professional, NITI Aayog

Novel Coronavirus originated in late 2019 in China and spread like wildfire across nations. While lockdowns were an ideal measure to limit the transmission of the disease, they had unintended con-sequences, especially in a developing country like ours, where the majority of the population lives hand to mouth. With the nation brought to a standstill, closing down of factories and industries for months had an adverse impact on income. The recent decline in India's quarterly GDP by 23.9 percent and the decline in private consumption expenditure by 26.7 percent in the April-June 2020 quarter, has further fueled concerns about the economy. Median forecasts from RBI’s recent Survey of Pro-fessional Forecasters indicated a contraction of 5.8 percent in India’s GDP for 2020-21. ADB also predicts a contraction of 9 percent in India’s GDP for FY2021.

As the country recovers from the consequences of the lockdown, this article focusses on the impact on private consumption in the coming year. Private Consumption accounted for 57 percent of India’s GDP in FY2020 and provided employment to over 45 million people, supporting varied sectors rang-ing from agriculture and MSMEs to big retailers and factories, even transportation and delivery ser-vices are dependent on consumption.

Impact of Recession on Consumption

In the midst of the last global recession, India’s private consumption expenditure growth decelerated from 7.3 percent in FY2008 to 4.5 percent in FY2009. Among all sectors, growth in expenditure on Restaurants & Hotels, Clothing & Footwear, Education, Health and Transport, decelerated. The im-pact may be greater this time, due to the costs of the pandemic and an increased share of these sectors in private consumption, from 30 percent in FY2008 to 34 percent in FY2019.

The transport sector would be adversely affected as travel and tourism are likely to remain limited. The decrease in education expenditure may be greater, as demand for additional coaching may reduce and an increased preference for digital education will result in reduced expenditure, especially at the graduate and post-graduate level. Spending on restaurants, hotels and in-store sales will depend on sanitary measures practiced and income shocks.

As the number of active COVID-19 cases continue to rise, the demand for healthcare services, par-ticularly voluntary healthcare services and medical tourism may reduce. Nonetheless, the impact may be limited with the wider adoption of tele-health services. Other contributors like health insurance and NGO health expenditure, are likely to provide a buffer to overall expenditure on health.

Spending on recreation and culture, a sector that exhibited resilient growth during the last recession could be adversely affected. Spending on crowded events, contact sports, movie halls, and the like, would be minimal; the only buffer would be digital alternatives.

Current Consumer Perceptions

Consumption is not only a function of income but also consumer expectations. Consumer Sentiment Survey (CSS) by RBI, reported an all-time low in consumer confidence in July, whereas the future expectations index recovered from the pessimism zone indicating improved expectations for next year.

McKinsey also conducted a survey on consumer sentiment in India in June, which indicated that over 75 percent of the respondents will be more cautious about spending in the near-term. While 58 percent of the sample indicated a loss in income due to COVID-19, 51 percent were optimistic about an economic recovery in the coming months. CMIE also recorded a 58 percent decline in consumer expectations in July .

With the resumption of economic activity, future economic expectations turn optimistic, however, currently reduced incomes and low consumer sentiment may result in lower spending in the near-term. Thus, transitory support to incomes and liquidity is crucial to support consumption and ensure economic recovery. The government has been cognizant of this and has been very proactive in this regard. Several reforms to support incomes had been initiated during the lockdown, including relax-ations and extensions to support exporters, credit support to agricultural supply chains and respite for salaried employees. Support to rural population and returning migrants was provided through direct benefit transfers and additional impetus to MGNREGA.

As part of the Atmanirbhar Bharat package, measures have been taken to reduce immediate tax bur-dens, support to industry especially MSMEs, additional support to migrant workers and shop vendors has been provided, among other reforms to support incomes.

Government support to the entire private sector, targeting the salaried and the self-employed, is es-sential, which will eventually feed into the incomes of the unorganized sector, through continued or increased consumption. Also, more stringent sanitary and social distancing guidelines may be issued and enforced at public spaces, including restaurants, shops, offices, among others - to enable people to safely resume their daily activities and consumption, without compromising the overall COVID-19 infection rate. While external shocks may be out of our control, we must strive to promote domes-tic production and make conscious choices to buy local products and support the domestic economy.

*Views expressed are personal.