Tuesday, October 15, 2024
Home » Economy » Downtrend in Investment Demand and Stagnant Consumer Spending

Downtrend in Investment Demand and Stagnant Consumer Spending

June 4, 2024
Economy
0

Share

The demand for investments has hit the lowest mark in the past four quarters, and consumer spending continues to be lackluster. The proportion of private final consumption expenditure (PFCE) to nominal GDP slightly decreased to 57.9% in the March quarter from 58.2% in the previous year. Despite the central government’s significant capital expenditure efforts, the gross fixed capital formation (GFCF), indicative of investment demand, has fallen to its lowest in a year during Q4 (January-March).

Concurrently, India’s private consumption demand showed little improvement in the March quarter. The National Statistical Office’s recent GDP data indicates that GFCF growth slowed to 6.46% in Q4, a drop from 9.7% in Q3. Previously, GFCF had seen a growth of 3.75% in Q4 FY23. Similarly, PFCE growth, a measure of consumption demand, slightly reduced to 3.98% in Q4 from 4.03% in the December quarter. Rajani Sinha, chief economist at CARE Ratings, noted that while government expenditure has been the primary driver of growth, private consumption remains weak. She anticipates an improvement in consumption trends with favorable rural spending due to a normal monsoon and a decrease in food inflation, which is essential for a widespread increase in consumption.

A revival in private investment is expected to follow a consistent rise in domestic consumption and a positive global growth outlook. Echoing these sentiments, Aditi Nayar, chief economist at ICRA Ratings, observed that the sequential deceleration in GDP growth in Q4 was attributed to investment activities, with private consumption showing tepid growth and government consumption expenditure recovering slightly from a decline. PFCE’s share of nominal GDP was 57.9% for the March quarter, a minor decline from 58.2% in the same quarter last year.

GFCF’s share also decreased to 31.5% from 32.3% in the corresponding period the previous year, highlighting the significance of maintaining an investment share in GDP above 30% for economic growth. In contrast, government final consumption expenditure (GFCE) accounted for a 12.2% share in nominal GDP during the quarter, down from 12.8% last year.

DK Srivastava, chief policy advisor at EY India, pointed out that while PFCE growth is still weak, the primary impetus for demand is stemming from investment growth, predominantly fueled by the government’s capital expenditure initiatives.

Related Posts

Reader / Viewer discretion and disclaimer :
The information provided on SMEConnect (www.smeconnect.in) website is intended for general informational purposes only. While we strive to provide accurate and up-to-date information, we cannot guarantee the accuracy, completeness, or reliability of the content. The views and opinions expressed in the articles and posts on this website are those of the authors and do not necessarily reflect the official policy or position of SMEConnect website. Readers are advised to independently verify any information found on this website before making decisions based on it. We do not endorse, represent, or warrant the accuracy or reliability of any third-party content linked on this site. Furthermore, SMEConnect (www.smeconnect.in) website shall not be held liable for any errors, omissions, or delays in the information provided, nor for any losses, injuries, or damages arising from its display or use. Please note that the content on SMEConnect (www.smeconnect.in) website may be subject to change without notice.