While GDP figures paint a positive picture of the Indian economy, a closer look at its components—private consumption, investment, government spending, and net exports—reveals a more concerning trend.
See omnystudio.com/listener for privacy information.
[00:00:00] In the full budget in July's Honourable Speaker, our government will present a detailed roadmap for our pursuit of Vickerset Bharat. As promised, Finance Minister Nirmala Sita Raman will be back to present her seventh budget on July 23rd.
[00:00:22] So what do you think, folks? Will the Modi-led NDA government reward voters for their support? Or will the lower mandate lead to tougher measures? Hi, you're listening to Onmanorama's Explainer podcast, News Break, a weekly show with Breakstar news in a clutter-free manner.
[00:00:43] This is Haritha Benjamin and today we are here to discuss the key factors that are likely to influence this time's budget. So what is the economy looking like right now? In absolute terms, India is the fifth largest economy in the world with a thriving growth rate.
[00:01:03] India's real GDP actually reached a massive Rs 173.82 lakh crore in 2023-24 compared to Rs 160.71 lakh crore the previous year. Even the real GDP growth rate climbed to 8.2% from 7% during this period. Definitely a huge plus for the Indian economy.
[00:01:26] But a closer look at your GDP's different components, that is private consumption, investment, governance spending and net exports reveal a more concerning trend. Let's talk about private consumption for instance. Yes, consumption did grow by 4% in the last fiscal but there are two points we need to consider here.
[00:01:48] A, it shows a K-shaped recovery with premium products and services showing higher growth rates than the value segment. B, the overall growth in consumption was mostly price-led and inflationary. Besides this, the private final consumption expenditures share in GDP has actually dropped to 55.8% from 58% in the previous year.
[00:02:13] Now this is extremely concerning because low consumption rate spurred by weak demand, particularly rural demand would slow down the economy significantly. It would affect capital spending by industries which are waiting for a robust demand to expand, diversify and invest.
[00:02:32] So even if the government hopes to crowd in private investment through more capital expenditure and therefore multiplier effect, companies may decide not to invest if there is no demand to begin with in the first place. So what is the root cause of this consumption slump? Simple, unemployment.
[00:02:49] No job means no money and no money equals no spending. The uptick in unemployment figures, particularly in rural areas and among female workers is one of the prime contributors of the low consumption slump.
[00:03:03] The uptick in unemployment figures, particularly in rural areas and among female workers is one of the prime contributors of the low consumption rate. Remember the near stampede-like situation at Mumbai Airport and the student agitations overneat and the railway recruitment exam.
[00:03:23] These are clear indications that India's youth is desperate for paying jobs. Now, though government figures beg to differ, unemployment figures calculated by independent think tanks like the CMIE suggest that India is facing a severe crisis in terms of matching its labour supply to demand.
[00:03:44] According to the CMIE, the unemployment rate in India stood at 9.2% in June 2024 as opposed to 7% in May 2024. What is more concerning is that the country which has one of the best demographic dividends in the world has employed only 37% of its youth in its economic activities back in 2022.
[00:04:09] Now let's take a look at the wages. Wages have largely remained stagnant or declined. Real wages for regular workers and self-employed individuals have shown a negative trend since 2019. Average a real monthly wage of a regular worker dipped from Rs 12,112 to Rs 10,925 in 2022.
[00:04:36] Wages in urban areas have also decreased faster than the ones in rural areas. While it has increased for government employees, private sector workers who comprise of a larger percentage of the workforce are experiencing severe wage stagnation.
[00:04:51] So either you have no job or if you do have a job, you have lesser real income than what you had a couple of years ago. The rising retail prices are no help either.
[00:05:02] Food inflation which makes up for about half of the overall consumer price index basket has climbed to 9.55% in June from 8.69 in May. And this was only 4.55% back in June 2023. Vegetable prices alone have surged for 27% last month.
[00:05:24] Now let's take a look at all the factors we've discussed so far. Unemployment, wages and inflation. So are these factors actually affecting the entire population in the country? Unfortunately not.
[00:05:37] The burden mostly falls on the poor half of the Indian population due to the extreme inequality in the country. According to an Oxfam report, the top 10% of the Indian population holds 77% of the total national wealth. While the poorest 50% saw only a 1% increase in their wealth.
[00:05:57] This disparity means that a majority of the population lacks the purchasing power which is needed to drive demand. Finance Minister Nirmala Sita Raman clearly faces in uphealt hours if she wishes to correct the consumption slump as the underlying causes as mentioned earlier are deeply structural in nature.
[00:06:20] Focusing on an investment led growth need not be sustainable for a populist country like India. So what should the government do? It's simple, put money in the hands of the lower income groups. Incentivise them to spend this money.
[00:06:35] Focusing on schemes like the MG Narega and supporting MSMEs could be the first step. Some of the key demands from MSME sector like doubling the loan limit to Rs 20 lakh under the Mudra Yojna and expanding the credit-carranty cover for unsecured loans could be considered.
[00:06:53] The sector is also seeking government incentives to help them sell their products globally. Additionally, the government should initiate steps to reap the benefits of the demographic dividend urgently and generate jobs to deal with the supply demand gap in the labour market.
[00:07:12] Targeted spending through state governments will also go a long way in reviving a consumption slump. So fingers crossed for July 23rd, let's hope our FM makes the right decisions this time. That's a wrap for today's episode of On Manorama's Newsbreak.
[00:07:31] An explainer podcast produced by Harita Benjamin with technical production by Aya Bruce-Teddyos. It comes out every week and is available on all podcast platforms. Follow onmanorama.com for more updates.