Do you think generating consumer demand is key to India's growth?.
India is a fast developing economy with a consistent growth rate. The major reason for such growth is the high level of production and consumption. This is only possible due to the booming population of the country.
Role of consumption and demand in economic growth
- Manufacturing growth
To cater to the growing population, the manufacturing rate is high. This will ensure that more value is added to the GDP and creation of employment.
- Demand for services
Similar to manufacturing, service sector is also run by demand. As income of individuals increase, their service demands also grow. This helps economy to prosper.
- Increase in revenues
Goods and services have taxes associated with them. As more goods are consumed, more revenues are collected. This can be invested further in social and infrastructure development.
Concerns due to consumption driven growth
- Reduction in exports
High domestic consumption rate has given producers luxury to sell goods in domestic market. This has reduced the export revenues and foreign exchange that could have been earned.
- Balance of payments
Consumption driven growth also puts pressure on domestic production and when they are unable to fulfill, imports take place. Higher imports will result in trade deficit for the country.
Measures to improve
- Reduction in income taxes
To enable greater spending and high consumption rate, people should have more disposable income. This is possible if there is no inflation and taxes are also low.
- Easy access to credit
Growth and production take place when producers have easy access to credit. Credit can be used to produce more goods and services, resulting in more consumption.
Thus, consumption led growth works well in only economies with high population. This does not work well in longer run as population growth stabilizes.
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