Festive Season Boosts India’s Consumption Recovery Prospects

Why in the news?

India’s private consumption shows signs of recovery, with increased spending expected during the festive season. However, long-term trends in key indicators remain below five-year averages.

Overview of Consumption Patterns:

Recent Trends: Private final consumption expenditure (PFCE) showed a significant turnaround in April-June 2024, growing by 12.4% in nominal terms, positively impacting GDP growth.

Festive Season Boosts India’s Consumption Recovery Prospects

Historical Context:

  • Prior to this, PFCE growth was lacklustre, pulling down overall GDP growth rates.
  • If PFCE were excluded, GDP growth would have been only 5.8%.
  • Consumer Sentiment: As the festive season approaches, expectations for consumer spending are rising, with signs of healthy consumption during recent festivals.

What is Private Final Consumption Expenditure (PFCE)?

  • Definition: PFCE is the total expenditure on final consumption of goods and services by resident households and non-profit institutions serving households (NPISHs).
  • Components:
  • Households: Spending on essentials like food, clothing, housing, transportation, entertainment, and healthcare.
  • NPISHs: Includes non-commercial services provided by organisations like charities and social clubs.
  • Importance:
  • Major contributor to GDP, often exceeding 50% of total economic output.
  • Indicator of consumer confidence and economic health; strong PFCE suggests economic growth, while weak PFCE signals economic sluggishness.
  • Exclusions:
  • Does not include expenditures by businesses, government, or foreign entities.
  • Categories:
  • Can be divided into durable goods (e.g., cars, appliances), non-durable goods (e.g., food, clothing), and services (e.g., healthcare, education).
  • Final Consumption:
  • Refers to direct consumption, excluding intermediate goods used for production.

Sources Referred:

PIB, The Hindu, Indian Express, Hindustan Times