Urban India’s spending Too Low for GDP to Revive

The coronavirus-led disruptions in India have strongly hit the consumption in the urban areas. While rural consumption recovered strongly during Jul-Aug 2020, urban consumption remained very weak, said the SBI Ecowrap report. The urban consumption shrank 34 per cent on-year in the first quarter while rural consumption shrank only 4 per cent. Further, in the first two months of the second quarter urban consumption fell 18 per cent on-year, compared to a flat rate of rural consumption. The report added that the fall in urban consumption is seriously worrying. From an average growth of 8 per cent during FY 2017-19, urban consumption declined for the first time in two decades in FY20, before collapsing by more than a quarter during April-August 2020. Rural consumption, on the other hand, grew at an average of 6 per cent during FY2017-19, before easing to 3.4 per cent in FY20 and further shrinking by nearly 4 per cent on-year. Urban consumption is undergoing an unprecedented downfall and it is unlikely that consumption expenditure will revive without a recovery in urban consumption. Given the disproportionate harm to the urban sector, a strong recovery in PCE, and real GDP growth seems far-fetched in the absence of any major support such as jobs and income guarantee, the SBI research report highlighted. Meanwhile, the economy has registered a record low of 23.9 per cent contraction in the second quarter and the short-term outlook doesn’t give much relief as well.