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Demand continues to remain muted despite economy opening up

Even as India opens up economic activities, overall demand continues to remain weak, making policymakers jittery. Though demand for several products including electronics, fast moving consumer goods (FMCG), two wheelers and pharmaceutical items has risen significantly in the last couple of months, overall consumption, especially for ‘non-essential,’ goods is still low.

Many analysts have underlined the need to proactively take measures to boost demand especially in the wake of the festive season kicking in with Rakshabandhan.

Though the industry has been pressing the government for drastic reduction in goods and services tax (GST) and lowering of income tax, sources said that the focus will be on reform measures.

“There is concern over lack of demand, and the issue has been discussed by senior government officials,” a business representative familiar with the development told IN.

"Goverment intervention to boost demand is not the solution. Instead it is working on carrying out more reform measures and create the right infrastructure and logistics eco system, which in turn will create demand," Gopal Krishna Agarwal, BJP's national spokesperson on economic affairs said, adding that there is little room left for any fiscal and monetary measures at this stage.

With the economic slowdown, thousands are out of jobs while income levels for many others have shrunk denting the overall sentiment. “Drop in income levels besides job losses have given rise to unprecedented uncertainty and people are deferring their purchases. They are buying products which are essential but when we look at a few segments such as apparels, footwear or other big-ticket purchases such as cars and homes, the demand is missing,” Nirupama Soundararajan, senior fellow and head of research, Pahle India Foundation, said.

While Finance Minister Nirmala Sitharaman announced a slew of measures as part of the Rs 20 lakh package in May, they were primarily aimed at removing supply-side constraints. Many analysis opined that little has been done to increase consumption directly though the supply side has been managed well.

Assocham secretary general Deepak Sood, however, said that merely removing supply-side constrains will not help until demand picks up. “Consumption has not picked up and this needs to be looked into. The government must roll out measures which will generate demand. Slashing of income tax is critical. GST too must be reduced by 50 per cent across the board to increase consumption,” he said.

The World Bank in its ‘India Development Update’ for July 2020 released today said that the economic contraction could be sharper and the multilateral agency could revise its projections made earlier.

The World Bank also underlined the need for India to continue with its reform process, something that will help in boosting the country’s economy. According to the report, the Central government’s fiscal deficit was likely to touch 6.6 per cent in the current financial year..