The COVID-19 pandemic has had a major impact on consumer demand as spending slumped due to people being stuck in their homes and some not being able to work. The already flailing economy was shoved to the ground by the COVID-19 pandemic and the following lockdowns.
The GDP contracted 23.9 per cent in the first quarter of FY21. It recovered in Q2 but still contracted by 7.5 per cent. The Reserve Bank of India (RBI) in its latest estimate had also projected the annual GDP to contract 7.5 per cent in the fiscal year.
The absence of adequate demand may jeopardise economic recovery and may even lead to a second-round impact, India Ratings in its recent report said. Therefore, it is pivotal that the government makes efforts to revive consumer demand for reviving the shrinking economy. The government had made efforts to do so last year.
In October, Finance Minister Nirmala Sitharaman had announced measures to boost demand in the economy. FM Sitharaman had announced Rs 73,000 crore to stimulate consumer spending in an effort to combat economic slowdown caused by the pandemic.
Consumer spending increases when people have more disposable income. Sitharaman announced a payment of cash in lieu of LTC and Rs 10,000 festival advances to government staff as part of its plans to increase consumer spending. Demand for consumer goods had picked up during the festive season but later receded.
The apprehension towards spending is expected to remain till COVID-19 vaccine threat reduces. After two consecutive months of positive growth, a contraction in factory output (Index of Industrial Production) in November 2020 shows the fragility of the ongoing recovery, the India Ratings report says. With the Union Budget 2021, the government should continue its efforts to boost consumer demands in order to revive the economy.