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GDP Q1 data: Private consumption continues to nose-dive, falls 54.3%

GDP Data Q1FY21: Discretionary spending has been hit hard with sales coming to a grinding halt for a few companies. Experts have said that all the consumer segments have been hit hard due to COVID-19

August 31, 2020 / 06:26 PM IST

India's first quarter FY21 GDP contracted 23.9 percent — highest ever on record as lockdowns forced by coronavirus spread halted all economic activities. India's private final consumption expenditure (PFCE) for April-June 2020 fell 54.3 percent, compared to a 56.4 percent growth in the same period a year ago. PFCE is a realistic proxy to gauge household spending.

The lockdown and the resultant fall in income implies that people are putting off purchases of aspirational items such as cars and televisions. A household's decision to buy a car or a consumer durable product such as television is not as much a function of current income as it is about expectations of future income.

A majority of Indian cars and relatively costly consumer durables are bought through loans. Job losses and salary cuts across sectors have crippled a household's means to finance a purchase over a three to five-year period.

Discretionary spending has been hit hard with sales coming to a grinding halt for a few companies. Experts have said that all the consumer segments have been hit hard due to COVID-19.

India, which imposed one of the strictest lockdowns in the world on March 25, bringing all economic activities to a grinding halt, started unlocking the country in a phased manner since June 1.

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Though businesses and economic activities have started picking up since then, India's economy still doesn't seem to be out of the woods, with various agencies expecting India's GDP to contract in the first quarter of FY21.

The Reserve Bank of India (RBI) in one of its monetary policy reports expressed  concerns about consumption and consumer spending in India due to the COVID-19 pandemic.

The RBI had observed that the aggregate demand was expected to be impacted adversely by a likely recession in the global economy, caused by disruptions in global supply chains, travel and tourism, and lockdowns in many economies. RBI had said that in the near-term, the challenge will be to mitigate the adverse impact of COVID-19.

A healthy economy grows over time and it's indicated in its increasing GDP, or the value of the goods and services it produces. Recession is defined as a period when economic activities contract for two quarters in a row (or six months).

Another contraction in the July-September quarter and India would have officially entered recession, which occurs when there is a contraction in business cycle, caused by shrinking economic activity and followed by a consequent decline in spending.

Kamalika Ghosh
first published: Aug 31, 2020 06:21 pm