EDITORIALS
Declining Consumption, Superfluous Incentives
Denial of evidences of consumption slowdown renders budgetary incentives inadequate for revival.
S
ince the declaration of the 2020–21 Union Budget, the
country has been abuzz with debates and discussions
about what stimuli this budget has offered for the slow-
ing-down economy, especially its decelerating consumption
demand. But, one is left with a moot concern that, even if the
budget seems to have offered some (band-aid) solutions for the
ailing economy, who can potentially benefit from these—the
“customer” or the “consumer?”
Though the two terms are frequently used interchangeably,
yet, technically, these are two different categories. A customer
is a buyer or a client of a product or service, but may not neces-
sarily end up being the consumer or its final user. Intuitively,
then, it may not be incorrect to assume that with the financial
(or purchasing) decision-making power, the interest of the
customer can prevail over that of the consumer. But, how far
has the budget been able to do that? At this juncture, one should
not lose sight of the fact that because of various forward, back-
ward, horizontal, and vertical linkages, it is hard to delink cus-
tomer and consumer interests from each other when viewed in
the perspective of the economy as a whole. For instance, as per
media reports, the stalling of some 1,600 housing projects in
the country has caused a loss of about `36,000 crore of labour
earnings in the real estate industry alone—not to mention the
income lost in those 200 or more ancillary industries of real
estate that have also faced the brunt of this slowdown—which
otherwise could have fuelled the weak consumption demand
in the economy. Apart from announcing some overarching
measures towards smart cities, affordable housing, infrastructure
development, etc, what fate-changing road maps has the budget
laid down for revamping these stalled projects?
The proponents of this budget may argue that lowering per-
sonal income tax and/or a new tax regime, or a one-year exten-
sion for availing tax holidays on affordable housing projects,
etc, can boost customers’ and consumers’ confidence. How-
ever, they need to be reminded of the Reserve Bank of India’s
(RBI) Consumer Confidence Survey conducted in August 2019,
which reveals that gloomy perceptions about employment and
income are among the drivers of a dip in consumer confidence
levels. Again, the question is: How has the government ad-
dressed these concerns in the current budget? The Economic
Survey 2019–20 has rather “eloquently” celebrated the case of
8 MARCH 7, 2020
entrepreneurial activity as a key driver of economic growth,
and, in this context, has estimated a significant growth in
entrepreneurship, measured as the count of new firms in the
Ministry of Corporate Affairs (MCA)—21 databases since 2014.
However, two things should be kept in mind while dealing
with this indicator. First, this data is only a one-time snapshot
of active firms registered with the MCA. Second, as the survey
itself mentions, these are mostly in the service sector. What
about labour-absorbing sectors like agriculture and manu-
facturing that have been facing the issues of decelerating
income and employment for long?
Not only is the government silent on these sectors and the
issues therein, but moreover, in so doing, it is also in brazen
denial of the fact that for almost two years now, rural wage
growth has been between 2% and 4%, and when adjusted for
inflation, there were months when wage growth had even been
negative. On the other hand, while the staff costs per employee
in the manufacturing and services sectors have been on a decline
since hitting a peak in 2015–16, staff costs per unit of production
have been rising. The latter implies that unless production picks
up, there will be no incentives for employers to either hire more
people or to improve compensation packages. Adding to the
disconcertion are the findings from the RBI’s Order Books, Invento-
ries and Capacity Utilisation Survey for the July–September 2019
quarter. The findings not only show a 4.5 percentage point
decline in the seasonally adjusted capacity utilisation in the
manufacturing sector during the second quarter of 2019–20,
but also a rise in both the ratios of finished goods inventory to
sales as well as the raw material inventory to sales.
With such alternative evidences that are indicative of weak
demand conditions in the economy, how long can the government
conceal the reality by withholding the key database on the demand
dynamics of the economy, such as the National Sample Survey
Office’s Household Consumer Expenditure Surveys? For years,
this database has been an invaluable analytical and estimation
tool for various crucial socio-economic indicators, including
inequality. Given this deliberate dismissal of such powerful evi-
dence of socio-economic dynamics, alongside the barefaced de-
nial of the very existence of an economic slowdown, what more
are the government’s budgetary incentives for demand revival
than a mockery of the common man’s existential crisis?
vol lV no 10 EPW Economic & Political Weekly