Inflation spanner in consumption revival

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To marketers and economists, consumption is perhaps more important than what rain is to the average Indian farmer. Policymakers, too, are eagerly waiting for consumption to revive the economy badly injured by the pandemic and its fallouts such as lower aggregate demand, lower income and lower expenditure by the private individuals. Consumption is an elixir that can substantially breathe life into the economy and restore its health. Therefore, many agencies are regularly surveying the market to gauge the trends in consumer demand and consumer confidence, a rise of which is a necessary condition to pull up demand in most items, especially non-essential and consumer goods.

A recent report by Deloitte, after surveying 1,000 individuals during a 30-day window in July-August, said that consumers are spending more and are displaying less anxiety about the future. Though the sample size of 1,000 is too small for a country of 1.35 billion, the global consultancy firm is confident that the expenditure is shifting to discretionary items that are classically described as non-essential. Its report has said that the country is cautiously returning to its usual business. Of the respondents, 12% are spending on alcohol, 22% on restaurants, 25% on furnishings, 33% on electronics, 36% on cable TV and an equal share on clothing/footwear, Deloitte said.

While nothing can be sweeter to the ears of the common man and policymakers alike, there is also a need to heed what is written on the other side of the coin. The head of Nestle India, one of the most prominent MNCs doing business in India, has warned of inflation queering the pitch, especially in 2022. India suffered high food retail inflation caused substantially by food inflation for a few months before it slightly moderated to below the upper level of the RBI tolerance band of 6% recently. Nestle MD apprehends that next year food inflation would surge again on the back of rising prices of agriculture commodities, oil and packaging materials. The surge in demand itself would apply upward pressure on the prices, he cautioned. The abundant liquidity in the market injected to revive growth, is also a trigger for inflation.

With millions losing jobs and a rise in household debt on account of the pandemic, inflation can easily play the spoilsport in the revival of demand and consumption. With purchasing power coming under severe stress, it can have a sobering effect on the revival of demand in the country.