A fall in private consumption is a warning sign for India

Private consumption refers to the money spent by households i.e; private individuals to buy consumer goods. This component contributes to 60% of GDP.

The growth rate of private consumption was recorded to be 3.05% against the growth rate of GDP at 4.5% in the same quarter of 2019.

Source: The Economic Times

This is problematic as it points out that the current environment does not promote consumption. Let us understand why:

A stable financial and economic environment is key to consumer confidence and sustained growth in this component. As people’s trust in financial stability erodes, their tendency to save, rather than spend increases for the foreseeable future. Effects of this can be seen in the dwindling sales of the automotive, metal and utilities sector.

This particular component is of vital interest because of its immense contribution to the GDP. Retardation here cannot be accommodated by changes in fiscal policy. Though an increase in government spending helps the economy overall, its effect will be negligible in compensating for the slowdown in private consumption. A stable socio political and financial environment is needed for this component to sustain growth.