Broadening the tax base, while ensuring fairness for lower income/business brackets, can create a more sustainable revenue stream for the government, without creating restrictions in spending-investment.
Authors
Deepanshu Mohan, Professor of Economics, Dean, IDEAS, Office of Interdisciplinary Studies, and Director, Centre for New Economics Studies (CNES), O.P. Jindal Global University, Sonipat, Haryana, India.
Aditi Desai, Senior Research Analyst, Centre for New Economics Studies (CNES), O.P. Jindal Global University, Sonipat, Haryana, India.
Summary
On the surface, headlines trumpet India’s robust GDP growth.
However, beneath this veneer lies a more troubling economic reality. Stagnant incomes and consumption paint a worrying picture. People simply aren’t spending more, indicating a lack of growth in purchasing power.
This weakness in consumer demand is further amplified by a sharp decline in household savings. With everyday expenses likely rising due to inflation, many households are forced to spend a larger portion of their income, leaving less room to save for future needs or investments.
Compounding this consumer sluggishness is a decade-long slump in private investment, the lifeblood of job creation and economic expansion. Despite a strong push for government spending (capex), a key indicator of investment demand — Gross Fixed Capital Formation (GFCF), which is defined as the acquisition of produced assets (including purchases of second-hand assets) — has exhibited a concerning decline.
Recent data shows a deceleration to a four-quarter low of 6.46% in the last quarter (January-March), compared to 9.7% just three months prior. This follows a subdued growth of 3.75% recorded in the previous fiscal year. This decline in GFCF suggests businesses are hesitant to invest in new ventures, potentially due to a lack of consumer demand or uncertainty about the overall economic climate.
Furthermore, preliminary signs suggest a moderation in private final consumption expenditure (PFCE), which serves as a proxy for consumer demand within the economy. PFCE growth witnessed a marginal decline from 4.03% in the December quarter to 3.98% in the final quarter. While less pronounced than the GFCF slowdown, this trend nevertheless presents a significant challenge for the upcoming budget. This data paints a picture of a sluggish economic cycle, where both consumer spending and business investment are showing signs of slowing down.
Published in: The Wire
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