CII urges targeted efforts to boost consumption

Lobby group Confederation of Indian Industry (CII) has called for targeted government interventions in the budget, including hiking minimum wages and payouts to farmers, to boost consumption, which boasts about 60% of India’s gross domestic product (GDP).

The industry group’s suggestion comes ahead of the union budget, which will be presented on 1 February, and as inflationary pressures have eroded consumers’ purchasing power.

The Reserve Bank of India (RBI), in its latest monetary policy meet, revised its consumer price inflation (CPI) forecast for the fiscal to 4.8% from 4.5% earlier. Retail inflation in October was 6.21%, above RBI’s targeted band of between 4-6%.

While recent quarters have shown “promising signs” of recovery in rural consumption, backed by a normal monsoon, increasing the per unit benefits under flagship schemes such as rural jobs policy Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), the farmer income support scheme Pradhan Mantri Kisan Samman Nidhi (PM-KISAN), and the affordable housing program Pradhan Mantri Awas Yojana (PMAY) could further boost this recovery, CII director-general Chandrajit Banerjee said in The Hindu-Business Line.

Banerjee suggested increasing the minimum wage under MGNREGS to ₹375/day from the current ₹267/day, PM-KISAN payouts to ₹8,000 annually from ₹6,000, and unit cost under PMAY-G and PMAY-U which has not been revised since the scheme’s inception in June 2015.

The “unit cost under PMAY-G and PMAY-U” refers to the fixed amount of money allocated per unit of housing constructed or improved under the Pradhan Mantri Awas Yojana’s sub-schemes: PMAY-G (Gramin, for rural areas) and PMAY-U (Urban, for urban areas). The unit cost is a critical financial metric determining the budgetary support provided by the government for each housing unit created or upgraded under these schemes.

Banerjee said that despite global uncertainties, India’s GDP averaged 8.3% in the past three fiscal years, showing remarkable resilience. However, following an election-related decline in government expenditure and a surge in food inflation due to uneven monsoon patterns, India’s real GDP decelerated to 5.4% in July from 6.7% in April-June 2024.

Banerjee suggested policy changes to push economic growth in the near term, highlighting that the current economic slowdown is most likely transient, with a slowdown in urban demand due to high inflation and interest rates, private final consumption expenditure moderated to 6.0% of GDP in Q2 from 7.4 % in this fiscal year’s April- June quarter.

The CII chief has called for a reduction in excise duty on fuel, and marginal tax rates for personal income up to ₹20 lakh per annum.

He also suggested that the government could provide “consumption vouchers designed to be spent on designated items that could be valid for a specified time to ensure spending.”

Banerjee pointed out that household savings have weakened, with bank deposits declining as a proportion of household’s financial assets from 56.4% in FY20 to 45.2% in FY24.

Low returns on bank deposits compared to equities and mutual funds, coupled with a higher tax burden on interest income, have made bank savings less attractive, he added.