Economic recovery in India driven by Indian households and not by govt spending: CMIE

The better than expected economic recovery in India has been driven by Indian households and not by enhanced government spending or greater investment by the private sector, the Centre for Monitoring Indian Economy said.

“The Indian economy has been recovering from the Covid-19-induced lockdown better than most expectations. It was clearly not driven by any government spending or initiative to spur growth. Neither was it driven by any increased investments by the private sector,” CMIE said in its weekly analysis.

According to CMIE, while the government spending during April-November 2020 was 4.7% higher than it was in the same months of 2019, it is the lowest year-on-year growth in central government spending in the past five years.


“If it is not the government and if it is not business enterprises then it can only be households that scripted the recovery,” CMIE argued.

According to CMIE, forced savings by the rich during the initial lockdown period and a much reduced fear of infections explain the contribution of households to the revival of the Indian economy.

“Factors that would determine the sustenance of the recovery process are a mix of the spread of employment, increase in household income levels and also positive perceptions regarding personal and economy-wide recovery process,” it said.

Based on the index of consumer sentiments, CMIE said the index of consumer sentiments split by income groups graphically reflects India’s weird K-shaped recovery post the lockdown. The K-shaped recovery was most evident in the quarter ended September 2020 with the difference between the rich and poor widening from 4 to 22 points. The index for the poorest fell to 31 and that for the richest rose to 53.

“Households of the lowest income group have recovered and the richest income groups pared some of their gains by December 2020,” CMIE said. “During this quarter, the gains have been in the two middle-income households that earn between Rs 2 lakh and Rs 5 lakh per annum and those that earn between Rs lakh per annum and a million a year,” it said, adding this income group holds the key to the recovery process.