oppn parties Economy Is Reviving But Government Spending Needs To Increase

News Snippets

  • T20 WC: USA enter Super Eights as their last match against Ireland gets washed out. They were ahead of Pakistan in the points tally. Pakistan were eliminated
  • T20 WC: USA enter Super Eights as their last match against Ireland gets washed out. They were ahead of Pakistan in the points tally. Pakistan were eliminated
  • BJD leader and former Odisha CM Naveen Patnaik said that the criticism of his aide V K Pandian is "regrettable"
  • As more than 20 BJP ministers lost in the recent elections, the new Union cabinet will have many new faces from the party
  • Congress Working committee asks Rahul Gandhi to take up the position of Leader of Opposition in Lok Sabha. Gandhi says he will consider the request
  • RBI governor Shaktikanta Das said that gold was shifted to India as the quantum of RBI gold abroad had increased due to recent purchases
  • Delhi HC rules that submitting photographic evidence of adultery will not be enough, they will have to be proved as authentic in the age of deepfakes
  • A four-member panel will review NEET-UG results of 1563 candidates to check if they were given extra marks for exam time loss
  • Mamata Banerjee says her party will not join Modi's oath-taking ceremony. Also says INDIA bloc might stake claim to form government later
  • K C Tyagi of the JD(U) dropped a bombshell when he said that Nitish Kumar was offered the post of prime minister for switching sides. Opposition leaders rubbished the claim
  • This May was India's hottest month in 36 years says IMD
  • T20 WC: India take on Pakistan today. Telecast to begin at 8pm IST
  • T20 WC: Afghanistan stun New Zealand and Bangladesh win against Sri Lanka
  • T20 World Cup: Australia beat England by 36 runs. This spoils England's chances of making the playoffs as they have lost both their matches till now
  • Heat wave continues in the country as monsoon moves slow
G7 commits to promote India-Europe corridor
oppn parties
Economy Is Reviving But Government Spending Needs To Increase

By A Special Correspondent
First publised on 2021-12-01 06:52:41

The Q2 GDP figures, although showing that economy is recovering fast, also show that private consumption expenditure is not rising as per expectations. This is mainly due to two reasons - one, government spending is not rising and two, the informal economy has still not come out of the Covid-related disruption. Hence, it seems that people either do not have money in the hand or they are consciously not spending, both of which are not good signs for the medium term growth of the economy.

Government spending, which had contracted 24 percent in Q2 last year, rose by just 8.7% this year, on a very low base. This was the lowest the government had spent in Q2 in the last five years. Private consumption expenditure, on the other hand, had contracted by 11% in Q2 in FY2021 and has risen by only 8.6% this year. Although gross fixed capital formation (GFCF), which shows the level of investments in the economy, has risen by 11% in Q2 this year after contracting by 9% last year, investments cannot be sustained if there is not a matching increase in private consumption expenditure.

This is because businesses that are investing in expanding existing capacities or starting new projects do so in the hope that demand for goods and services will rise. But if demand remains stagnant, over a period of time investments will also peter out. In such a situation, it is imperative that the government spends on infrastructure projects to give a boost to the economy. Government spending starts a chain reaction and almost the entire economy, including the informal sector, benefits. Sentiment is revived, money flows in the hands of the people and demand for goods and services rises. That revives the economy faster. Although Covid-related expenditure has held the government back, but given the state of the economy, fiscal intervention is now urgently needed to boost the economy.