Consumption Staged Broad Based Post-Pandemic Bounceback In FY23 But Needs A Stimulus Now

(MENAFN- Live Mint) New Delhi: Households splurged on goods ranging from cars to crockery after the pandemic, driving a broad-based recovery of consumer demand, but this growth has begun to moderate since then, official data showed, prompting experts to call for government stimulus to push it.

After the pandemic, demand for goods and services grew in a wide range of sectors, including in those had seen a sharp dip during the pandemic.

These included education, transportation, dining out, recreation, automobiles and household appliances and semi-durable goods like crockery, according to data available from the statistics ministry.

Each of these sectors reported more than 10% expansion in FY23, according to a breakup of household consumption, which comes with a lag, showing that the story of consumption recovery after the pandemic was robust.

However, household consumption expenditure growth is showing signs of moderation. Details of household consumption in FY24 by segments is only expected next year.

Data reviewed by Mint showed that household spending on transport, a component of private final consumption expenditure (PFCE) in national accounts, which had contracted over 18% in the pandemic year rebounded by over 24% in FY22 and by close to 12% in FY23.

Education, which had seen a 5.6% contraction in FY21, rebounded by 11.7% in FY22 and grew by close to 13% in FY23.

Spending on restaurants and hotels, which also contracted by 52% in FY21, had rebounded by 38% in FY22 and further expanded by 55% in FY23 as people who were forced indoors by one of the world's strictest lockdowns began dining out and travelling, data showed.

Consumption of durable and non-durable goods, which also contracted during the pandemic later recovered. Spending on durable goods like automobiles had seen a near 5% contraction in FY21, but witnessed a 31% growth in FY22 and a more than 14% growth in FY23.

But it seems to be a slightly different story when it comes to estimates on whether the pace of expansion will continue.

Overall, household consumption expenditure, after a 5.2% contraction in FY21, grew 11.7% FY22 and 6.8% FY23. But For FY24, the ministry's projection is more moderate at 4%, even as economic growth is projected at 8.2%.

Experts pointed out that pent-up demand fuelled the recovery in household consumption and that a better monsoon this year could add further momentum. But, they said, government measures will also be crucial.

“Higher agricultural production and downward trending inflation provide tailwinds to urban demand and resurgent rural demand. Government consumption is also likely to rise though the pace, sequence and composition of government consumption is a matter of some debate,” said Manoranjan Sharma, chief economist - Infomerics Ratings and former chief economist at Canara Bank .

Sharma said high unemployment is a cause for concern.“Creating jobs is critical to recovery, together with boosting demand.”

He said tailored growth strategies are needed to steer all the four drivers of economic growth -- domestic consumption, government expenditure, private investment and exports.

Going forward, household consumption expenditure requires to be stimulated, said D K Srivastava, EY's chief policy advisor.

“Private final consumption expenditure should grow at least in line with real GDP growth or marginally below it. If real GDP growth is 7% and PFCE growth is something below that level, then there is some space for household savings to increase and which will allow the overall growth rate to be sustained,” said Srivastava.

Growth in the savings rate would fuel private investments in the economy.

Srivastava said government final consumption expenditure (GFCE) is projected to have grown at a subdued rate of 2.5% in FY24 as per
provisional estimates and that the government should push its revenue expenditure growth.

“Most of that increase can be directed towards rural areas where consumption expenditure is to be stimulated,” said Srivastava.

Experts said the trend indicates the normalization of consumption expenditure growth after the sharp post-pandemic recovery.

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