Spending on services fell 10% in FY21, say first revised estimates

Household spending on services plunged almost 10 percent in 2020-21, as curbs during the first Covid-19 wave restricted the running of restaurants and hotels and shut malls, cinemas, health clubs as well as salons, the first revised estimates of the national accounts for the year published by the National Statistics Office on January 31 show.

Overall, household spending captured by private final consumption expenditure (PFCE) declined 6 percent to Rs 77.64 lakh crore at constant 2011-12 prices, down from Rs 82.60 lakh crore in 2019-20, the numbers released on Budget eve showed.

Spending on services, which is about 50 percent of the PFCE, was estimated at Rs 38.53 lakh crore from Rs 42.47 lakh crore.

Within services, spending on restaurants and hotels plunged 54 percent from Rs 2.02 lakh crore to Rs 0.93 lakh crore, as people stayed indoors in the first quarter of the fiscal and restaurants and hotels followed Covid protocol throughout the year.

Yet, the share of PFCE, the largest component of the gross domestic product (GDP), climbed to its highest since the 2011-12 series of national accounts was introduced. This happened as PFCE shrank less than the total output for 2020-21.

The first revised estimates of GDP for 2020-21 show the PFCE at 57.3 percent of the GDP, up from 56.9 percent in 2019-20, after the total output of the economy contracted 6.6 percent in real terms to Rs 135.58 lakh crore.

Households spent less on clothes, shoes

Lower spending by households on semi-durable products such as clothing and footwear, rubber and plastic products, tyres, watches and clocks, stationery and leather products also contributed to the fall of PFCE.

Spending on semi-durable goods fell 21.2 percent to Rs 4.42 lakh crore, a level last seen in 2013-14. However, the impact of that fall on PFCE was relatively small, as spending on semi-durables accounts for less than 6 percent of the expenditure.

Over 80 percent of that fall can be attributed to the 22.2 percent fall in spending on clothing and footwear during the year.

A sharp 19.4 percent fall in household spending on transportation also proved to be a drag on PFCE. Transportation is among the top expenditure in PFCE but lockdowns or coronavirus-induced restrictions for a good part of the year restricted movement.

Loss of income also lowered demand for new vehicles. Two-wheeler sales have been experiencing a slump. The NSO data shows that the expenditure on transport at Rs 12.28 lakh crore was less than the spending seen in 2017-18.

Household spending on alcoholic beverages, tobacco and narcotics was also a casualty of restrictions on movement. With a 15.7 percent fall in spending on tobacco and alcoholic beverages to Rs 1.35 lakh crore, it was below the levels seen in 2014-15.

According to the revised estimates, India's GDP contracted by 6.6 percent in FY21, which compares favourably with the provisional estimate of a 7.3 percent contraction released in May 2021.

In nominal terms, the GDP is now estimated to have shrunk by 1.4 percent in FY21 as against the provisional estimate of a 3 percent contraction.