Reviving Consumption Demand For Economic Growth 2021

What is Consumption?

Consumption is defined as the use of goods and services by a household. It is a component in the calculation of the Gross Domestic Product (GDP). Macroeconomists typically use consumption as a proxy of the overall economy.

Indian economy is at top of the growth chart with 7.6% growth in 2015-16 India overtaking china as the fastest-growth economy. The Indian economy is estimated to grow 7.9% in 2016-17. Consumption plays an important role in the income and employment.

What are the factors that affect consumption?

Consumption function, in economics, the relationship between consumer spending and the various factors determining it. At the household or family level, these factors may include income, wealth, expectations about the level and riskiness of future income or wealth, interest rates, age, education, and family size.

The consumption function tracks total aggregate consumption expenditures; for simplicity it is assumed to depend on a basic subset of the factors economists believe are important at the household level.

PFCE at current prices was estimated at 81.12 lakh crore 2015-2016 as against 71.93 lakh crore in 2014-15. The agricultural sector in India is highly dependent on monsoon with 55% of its arable land still rain-fed. This make the income of farmers in India highly unstable and monsoon-dependent.

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The consumption function is of interest in itself, but it also has a powerful influence on many other kinds of economic behavior. For example, individuals with only a small stock of savings who are laid off from their jobs may be forced to take new jobs quickly, even if those jobs are a poor match for their skills. On the other hand, laid-off consumers with substantial savings may be able to wait until they can find a better job match. Whether a consumer is likely to have much savings when laid off will depend on the degree of patience reflected in the consumption function.

Fast forward the present times Government has taken bold steps towards opening up of the Indian economy and improving the conditions for conducting business. While the impact of changes in the foreign direct investment regime and budget stimulus to the rural sector


After the pandemic, we have a good recovery. The Q2 numbers of the listed corporate entities have been much better than the expectation.

Also, at least in India, there are improvements in the overall recovery rates, the mortality rates are down, the vaccination is around the corner and any delay on this vaccination would be more negative for the Indian economy and markets as compared to let us say what is happening in the UK.

India is a domestic consumption-driven economy. Anything which helps revive consumption, anything which helps jobs and helps revive per capita income is what we normally look at.

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