India’s Economy: Consumption Rises While Capital Spending Slows Down
India is experiencing a shift where consumption is growing faster than capital expenditure, a trend seen during the pandemic. A report by Nuvama Wealth Management shows that the capex to GDP ratio has slowed in the past two quarters, while consumption to GDP has increased. This change raises concerns about the long-term strength of the Indian economy.
During the pandemic, India’s capex to GDP ratio dropped significantly, especially in FY21. However, the economy bounced back in FY23 and FY24 due to increased infrastructure investments and government spending. Recent data indicates that this recovery phase may be slowing down.
The report highlights that India’s consumption demand has shown a K-shaped recovery, with strong growth in vehicle sales, particularly SUVs and passenger vehicles. This surge in demand helped GST collections grow faster than nominal GDP. However, recent data shows a slowdown in passenger vehicle sales and GST collections.
This emerging trend suggests that while consumption remains strong in certain segments, the overall economic landscape may face challenges.
Doubts Revealed
Consumption -: Consumption means the use of goods and services by people. For example, when you buy a toy or eat a chocolate, you are consuming.
Capital expenditure -: Capital expenditure, or capex, is money spent by businesses or the government to buy or improve long-term assets like buildings, machinery, or roads. It’s like when your parents buy a new car or renovate your house.
Nuvama Wealth Management -: Nuvama Wealth Management is a company that helps people and businesses manage their money and investments. They provide reports and advice on financial matters.
Capex to GDP ratio -: The capex to GDP ratio compares the amount of money spent on long-term assets to the total value of all goods and services produced in the country. It’s like comparing how much your family spends on big things like a car to the total money your family earns.
Consumption to GDP -: Consumption to GDP ratio compares the amount of money people spend on goods and services to the total value of all goods and services produced in the country. It’s like comparing how much your family spends on daily needs to the total money your family earns.
GST collections -: GST stands for Goods and Services Tax. It’s a tax people pay when they buy things. GST collections refer to the total amount of money the government collects from this tax.
SUVs -: SUV stands for Sports Utility Vehicle. It’s a type of car that is bigger and often used for both city driving and off-road adventures.
Pandemic -: A pandemic is when a disease spreads to many countries and affects a lot of people. The COVID-19 pandemic is an example, where many people around the world got sick.
