Consumption-led growth

Apparently, Assocham has asked for measures to boost personal consumption. Not a smart idea, for the country that is.

“It is time to consider some serious measures to give boost to consumption driven demand, leading to new investment,” Rawat said.  [Link]

Bank Credit is going primarily for personal loans. Consumption means less savings and more current account deficit and less investment too. India is already relying too heavily on personal consumption and government spending to drive growth. Further impetus would make it more lopsided and unbalanced. It is unhealthy for the economy in the long-term.

I read this story in THE HINDU too with mixed feelings. The access to credit is welcome and that technology is enabling it is very good news. But, the end-use of this credit – bulk of it going to finance consumption – is not at all good news.

Something similar happened in the West in the new millennium. Credit growth replaced employment and income growth and financed consumption. We all know how it ended.

Check this story out in ET on income stress for Indian salaried class. When asked what would elevate the chances of them achieving their future financial goals, they said that lower inflation, lower education and lower health care costs would help. The last two can be subsumed under inflation. These three add up to 65% of the responses. All three actually fall under ‘cost of living’.

 

We must make it possible, easier and worthwhile for Indian households to save. India’s consumption share of GDP is high enough.

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