Private consumption continues to lag other segments

Latest advance estimates suggest full recovery of all components on the demand side in 2021-22 except for private consumption, as per the Economic Survey for 2021-22.

When compared to pre-pandemic levels, recovery is most significant in exports followed by government consumption and gross fixed capital formation. However, an equally strong recovery was seen in imports.

Total consumption is estimated to have grown by 7.0 per cent in 2021-22 with government consumption remaining the biggest contributor as in the previous year.

Government consumption is estimated to have grown by a strong 7.6 per cent, surpassing the pre-pandemic levels.

Private consumption is also estimated to have improved significantly to recover 97 per cent of the corresponding pre-pandemic output level. This is supported by a sharp rebound in HFIs like IIP Consumer Durables.

However, the recent dip in vehicle registrations reflects persistent supply-side constraints owing to the shortage of semi-conductor chips rather than lack of consumption demand, the Survey noted.

Further, RBI’s consumer confidence survey results on both the present situation and future expectations suggest sustained uptick in consumer sentiments.

Also indicative of uptick in consumer sentiments is the steep rise in digital transactions, notably in UPI payments owing to the pandemic induced shift to contactless payments. Private consumption is poised to see stronger recovery with rapid coverage in vaccination and faster normalisation of economic activity.

In contrast to contact-based services, distance-enabled services have increased their share with the growing preference for remote interfaces for office work, education and even medical services. Indeed, there has been a boom in software and IT-enabled services exports even as earnings from tourism have declined sharply.

Services account for more than half of the Indian economy and were the most impacted by the Covid-related restrictions, especially for activities that need human contact.

Although the overall sector first contracted by 8.4 per cent in 2020-21 and then is estimated to grow by 8.2 per cent in 2021-22, it should be noted that there is a wide dispersion of performance by different sub-sectors.

Both the finance/real estate and the public administration segments are now well above pre-Covid levels. However, segments like travel, trade and hotels are yet to fully recover. It should be added that the stop-start nature of repeated pandemic waves makes it especially difficult for these sub-sectors to gather momentum.

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