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Consumer spending in India—once the cornerstone of its booming economy—has seen a troubling decline in recent years. Data from the National Statistical Office (NSO) shows real per capita consumer expenditure fell by 5.4% between 2015-16 and 2021-22. Yes, a decline. The first in over forty years! Compare that to the golden era of 2010-2015, where consumer spending grew at an impressive 5.7% annually. That stark contrast is not just a statistic; it’s a reflection of shifting realities for millions of Indians. A perfect storm of disruptions—the pandemic, runaway inflation, and rural stagnation—has left wallets lighter and aspirations dimmer. It’s like watching a high-speed train screeching to a halt.
Growing Inequality: A Century-High Divide
India’s wealth inequality, frankly, is a story of extremes. According to the World Inequality Report 2022, the top 1% of the population controls over 40% of the nation’s wealth, while the bottom half holds a mere 13%. One can’t help but gasp at the audacity of such numbers. The rise of billionaires is dazzling: 102 in 2018 mushroomed into 166 by 2023(Forbes Billionaires list). Yet, as these gilded empires expand, the other side of the coin—real incomes for ordinary people—continues its slow decline. The Gini coefficient, a barometer of inequality, screams louder every year. And here we are, a country of two worlds: one basking in opulence, the other grappling with survival.
Corporate Profits vs. Wage Growth: The Mirror of In-equality
Let’s talk about profits. Oh, they’ve soared! The combined net profits of Nifty 500 companies jumped by over 60% between 2018 and 2023. But here’s the kicker: real wages for workers have barely budged, growing at a pitiful 2% annually, once inflation eats into it. the growth is negative. It’s a tale of two trajectories: one shooting up like a rocket, the other crawling along the ground. Employees are being left behind, clinging to stagnant paychecks as the cost of living outpaces their earnings. Inflation doesn’t just nibble; it devours.
Inflation Vis-a-vis Wage Growth
Inflation… the silent thief. Over the past five years, it has been relentless, eating away at the purchasing power of households. The retail inflation rate breached 6% multiple times since 2020, defying the Reserve Bank of India’s (RBI) comfort zone. Food, fuel, and housing prices have been particularly unforgiving. For rural India, the story is grimmer. Farmers and low-income households, who already spend a disproportionate share of their income on essentials, find themselves with little to spare. What’s left after buying rice, dal, and a tank of petrol? Not much. The result: a pullback in discretionary spending, a slowdown in consumption, and a pinch felt across the economy.
Weak Rural Demand and Its Ripple Effect
Ah, rural India. The backbone of our economy. And yet, it’s faltering. Agricultural growth, which sustains nearly 50% of the population, has been mediocre at best, hovering around 3.6% annually over the last five years. Public investment in rural areas has dwindled, and employment schemes like MGNREGA, lifelines for many, have faced real-term funding cuts. Weak rural demand is not just a rural problem; it’s a national one. Industries that depend on this demand—two-wheelers, affordable housing, FMCG—are feeling the strain. When the village doesn’t buy soap, the city feels it too.
Structural Issues in Employment and Income Generation
Let’s be honest. Jobs in India aren’t what they used to be. Sure, we’re creating jobs, but are they good jobs? The answer: not really. Informal and gig-economy work has ballooned, but quality employment has dwindled. According to the Periodic Labour Force Survey (PLFS), unemployment has stayed stubbornly above 6% for much of the last five years. And for those lucky enough to have a job, insecurity looms large. Contracts are short, wages are low, and benefits are a distant dream. It’s a precarious existence, and it’s dragging consumer confidence down with it.
Impact on GDP Growth
Private consumption, the lifeblood of India’s economy, makes up 60% of GDP. When it falters, the entire economy feels the tremors. GDP growth slowed to 5.4% in july-September quarter 2024. It’s not just numbers; it’s livelihoods, aspirations, and futures hanging in the balance. Retail, hospitality, manufacturing—these sectors have borne the brunt of this slowdown, and the ripple effects are hard to ignore.
Other Contributing Factors
The pandemic shook the foundation. Geopolitical tensions added fuel to the fire. Global supply chain disruptions made matters worse. Rising interest rates—a necessary evil to combat inflation—have made borrowing costlier. And let’s not forget the household debt crisis, which has surged by 35% over five years. Debt-laden households spend cautiously, often prioritizing loan repayments over consumption. The cycle is vicious, and breaking it requires more than just hope.
Challenges Ahead and How the Government Can Tackle Them
India stands at a crossroads. The challenges are daunting, but not insurmountable. Inequality needs to be tackled head-on. Progressive taxation can be a start. So can redistributive policies aimed at lifting the bottom half of the population. Rural demand must be revived—through better crop prices, robust rural employment schemes, and significant investment in infrastructure. Inflation control is critical. It’s not just an RBI problem; it requires coordinated fiscal and monetary policy. Job creation, too, demands attention. Not just any jobs, but quality, stable jobs that inspire confidence in the future. Skill development, labor market reforms, and incentives for industries to formalize employment can make a difference.
Finally, private consumption must be boosted. Tax relief for the middle class, affordable credit options, and reducing household debt burdens can provide immediate relief. It’s not just about economics; it’s about restoring faith in the system. The government can also consider additional tax on companies which offer app based services as these services do not generate employment, a similar tax can be considered on companies which create gig economy or those who outsource permanent employees job. At the same time, Company which generate more employment in terms of permanent employees can be given tax incentives. A special billionaire/wealth tax can also be considered but in the long run it is not prudent to tax extra, who is making money. The time has come that government should promote permanent employees in the ecosystem to ensure equitable distribution of wealth. Otherwise also, if there are no consumers, then whom will the corporate will sell. Any system which has AI/ App based applications which cut the permanent employee must be taxed more. The question is, if we remove all the employees, the consumers are also removed then whom the AI/ Apps will sell in that ecosystem?
