India has emerged as the fastest-growing large economy in recent years, with consumption being one of the main growth drivers for several decades. However, the momentum of consumption now appears to be slowing down—we recorded a growth of about 4% in financial year 2023-24 (FY24), as against 5%+ since FY10 (with the exception of FY21). This highlights a decoupling between consumption and GDP growth, with public capital expenditure taking the lead. If we peel back the layers of this consumption story, we see that the urban rich continue to drive private consumption, while rural demand has largely stagnated.
According to the Household Consumption Expenditure Survey 2022-23, urban per capita consumption is about 71% higher than that of rural areas (compared to about 84% in FY12). As India continues to cement its path towards a Viksit Bharat, this gap needs to be bridged on priority.
Covid-19 and geopolitical challenges impacted GDP growth globally. While the US and China have explored direct cash transfers and reduced borrowing costs to boost consumption, this has presented its own challenges, including higher debt-to-GDP ratios. India, on the other hand, has refrained from fiscal measures of this kind and has focused on building infrastructure to enable long-term sustainable growth. However, what remains inevitable is the need to boost consumption even in the short term. Considering India’s inherent diversity, a nuanced approach that motivates inclusive and equitable growth is needed—one that supplements the government’s focus on infrastructure development and supports the manufacturing sector as well.
While uncontrollable factors like climate change and other disruptors will continue to impact the ecosystem, a combined effort between the government and the private sector towards the ‘controllables’ could create significant value. Public-private partnerships or initiatives could strategically contribute towards equitable growth—right from encouraging rural entrepreneurship and creating jobs to addressing the expectation and supply gap for consumers in rural India.
Enabling rural entrepreneurship: With about 65% of the Indian population living in rural India and about 47% of the population still dependent on agriculture for its livelihood, boosting rural income, providing alternative means of employment, and thus driving consumption are intrinsically linked to India’s growth story.
Improving Agricultural Income: Increased availability of resources—equipment, raw material and skills—can sustainably increase agricultural productivity. Agri reforms with stakeholder representation and consultation can empower farmers to expand their customer base through traditional and digital marketplaces, improve price discovery, and minimise wastage.
Supporting production can be another avenue—localised units which could be financed with zero or low interest rates. Additionally, these units could utilise technologies like flash-freezing and canning that would serve the dual purpose of supporting food security and driving rural income.
Development of Rural MSMEs: A continued focus on the One District One Product (ODOP) initiative and encouraging traditional craftsmanship through geographical indication tags and leveraging the Open Network for Digital Commerce (ONDC) can drive economic and social mobility.
A ‘Master Plan’ To Boost Tourism: Developing new tourist attractions and improving the overall tourist experience through structured skilling would also create an alternative source of sustainable income. New-age experiences including agri-tourism, curated wildlife trails and hikes, in addition to the development of waterfronts can boost local economies. Likewise, developing and reinforcing infrastructure that creates improved social spaces for hospitality, retail, and leisure can help create revenue models centered on a service culture while also creating ancillary jobs.
Improving MSME resiliency: Micro, small, and medium enterprises (MSMEs) today employ over 20 million people, and account for about 45% of the country’s exports. In addition to existing initiatives for improving access to credit, policy measures that encourage investment could play a big role. Programmes that increase awareness and provide learning to MSMEs on ONDC-based procurement and sales can increase customer access and reduce dependence on third-party marketplaces, reducing the burden from commissions and working capital cycles.
Innovation: The heterogeneity of the Indian consumer calls for companies to reinvent their business models and evolve to effectively address customer expectations. Democratised technology and innovations such as AI could create solutions to solve on-ground challenges, which when done even at a small scale can create meaningful stakeholder impact.
And finally, upskilling is critical across all these levers. Industrial training through collaboration between the public and the private sector can prepare the workforce for jobs within the manufacturing space.
Additionally, programmes that aid the development of problem-solving and decision-making capabilities would create transferable skills. In parallel, functional training initiatives that enable on-the-job learning would also help the existing and prospective workforce enhance its productivity.
In addition to vocation-specific skills, basic financial and accounting skills will help with wealth creation and further formalise the economy.
The author is Chairperson, PwC in India. Views are personal