Trends and changes in consumtion pattern in India : Implications on Economic growth

Submited by:NameKUSHAL KHARE

ENROLL NO:- 12BSPHH010499 SECTION C SEAT NUMBER-43

ACKNOWLEDGEMENT
Project work is essentially a learning process in which apart of learning the subject itself, one also learns to share ideas and work as a team. I am sure that involvement in this project as well as the exposure I have gained will prove to be stepping stone for other opportunities that come in my way. I am thankful to our teacher and mentor Mrs. Paulomi Bhattacharjee who helped in all ways to make this project a success. .

INTRODUCTION To start with the topic let us first understand what GDP is. GDP is the name we give to the total market value of the final goods and services produced within a nation during a given year. GDP= C + I + G + X Where, GDP is gross domestic product, C is consumption, I is investment, G is government spending, X is net exports. GDP is used for many purposes, but the most important one is to measure the overall performance of an economy. GDP can be calculated by two approaches. A) Goods flow approach B) Earnings approach.

The above diagram shows the circular flow of macroeconomics activity in which the outer loop shows the EARNINGS APPROACH and the inner loop shows the GOODS FLOW APPROACH (or production approach). The production approach includes:1) Personal consumption expenditure A) Durable goods B) Nondurable goods C) Services 2) Gross domestic investment 3) Net exports of goods and services 4) Government consumption expenditure

Thus this project emphasizes on the changes and effect of consumption pattern on the economic growth of INDIA i.e. on GDP.

Objectives
The objective of this project is to:a) Understand the concept of GDP b) Factors determining GDP c) To see the trends and the changes in consumption pattern and what are its implication on the economic growth.

DATA ANALYSIS
Share of Variables of Final Private Consumption Expenditure at 2004-2005 prices:-

2004-2005
Food, beverages, & tobacco 3 8.9 40 Clothing & footwear Gross Rent, fuel, & power 19.3 Furniture, furnishings, etc. Medical care & health services 5 3.4 13.8 6.6 Transport & communication Recreation, education, & cultural services Miscellaneous goods & services

The above pie chart shows the share of different variables of final consumption expenditure. We can see that in the year 2004-2005 the food variable has maximum share of 40% followed by 19.3% in transportation and communication and important expenditure of Medicare and health

services is only 5%.

2007-2008
Food, beverages, & tobacco 13 3 36.3 18.7 Medical care & health services Transport & communication 4.8 4.1 12.1 8 Recreation, education, & cultural services Miscellaneous goods & services Clothing & footwear Gross Rent, fuel, & power Furniture, furnishings, etc.

Where as in the year 2007-2008 the share of food has fallen over to 36.3% this is the time of recession were we can see that people have started spending less and saving more. The expenditure on transportation and communication has also fallen to 18.7% which is not that significant. The expenditure over miscellaneous goods and services has risen to 13% over years.

2010-2012
Food, beverages, & tobacco 16.2 2.9 32.1 Clothing & footwear Gross Rent, fuel, & power Furniture, furnishings, etc. 20.4 8 4.8 4.6 11.1 Medical care & health services Transport & communication Recreation, education, & cultural services Miscellaneous goods & services

In the year 2010-2012 we can see that peoples expenditure on food has again fallen to 32.1%. Expenses on transportation and communication have increased may be due to rise in oil prices. Rent, power and fuel expenses has also risen to 11% and the expenses on other miscellaneous

goods and services has risen sharply to 16.2% indicating change in lifestyle and people purchasing other luxury goods. The chart below shows the percentage share of all the variables in private consumption taking 4 years for analysis for conviences i.e. year 2004-2005, 2007-2008, 2008-2009, and 2011-2012.
45 40 35 30 25 20 15 10 5 0

2004-2005 2007-2008 2008-2009 2010-2011

Growth in Private Consumption Expenditure and Government Consumption Expenditure

16 14 12 10 8 6 4 2 0 Private final consumption expenditure Government final consumption expenditure

Growth in PVT and GOVT CONSUMPTION

The above bar chart shows the growth rate of both the private and government consumption expenditure. We can see that in year 2005-2006 the growth in expenditure were almost same for private and government consumption expenditure i.e. 8.6% and 8.9% respectively. Then therein 2006-2007 there is a sudden fall in the government consumption expenditure. It has fallen to 3.8% and again rose to 9.6% in 2007, whereas the private consumption expenditure remains almost the same for both the year. In year 2009-2010 we can see that government consumption expenditure shot up to 14.3% and private consumption coming down to 7.2% due to recession in the economy. This is one of the expansionary fiscal policies that government has applied to overcome from recession and a very high inflation; after the conditions has been stable the government spending has again fallen to 7.8% in 2010 and again to 5.6% in the year 2011. The diagram below represents the total final consumption expenditure of both the government and private sector.

GDP at factor cost

12 10 8 6 4 2 0 GDP at factor cost

Private final consumption expenditure in domestic market

5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 Private final consumption expenditure in domestic market

From the above two tables we can see that there has been a fluctuation in the GDP of INDIA over years. This is due to the recession in the economy. This is evident from the fact that the GDP in the year 2004-2005 was 9.5 and was stable till year 2006-2007. Due to GLOBAL CRISIS the GDP in the year 2007-2008 has fallen to 6.7 and again started recovery in the year 2008-2009 and was stable and again fallen to 6.9 in 2010-2011 which was due to double dip recession. Despite the fact that there was an economic slowdown during the year 2007-2009, the private final consumption in the domestic market has been rising constantly over years. This is due to the economic policies that India has followed which secured growth in the economy but at a slower rate.

Conclusion
With an increase in national income, as expected, the consumption of luxury goods (furniture and misc goods) has increased. And the expenditure on necessity has declined in proportion to total consumption. Transportation expenditure has increased which can be attributed to the rise in fuel prices. Private consumption does not vary as much as other demand-side components and partly on account of inflationary tendencies, which tend to reduce savings rather than affecting the consumption level in the economy. The reduction in the financial savings rate of households could be partly attributable to inflationary tendencies in the economy during the period that resulted in higher growth of private final consumption expenditure than of personal disposable income and partly to a reduction in real interest rate. Consumption on assets and infrastructure services contributes more in economic growth by increasing productivity. Investments in capital assets have the same impact. Consumption of domestically produced good has a ripple effect on the economic growth as it increases demand, increases domestic employment and income through profits and wages. Moreover it reduces the imports and increases the ability to export. India has started to invest on luxury goods but inflation has taken toll on savings and hence on investment. Adding to our woes, slowdown has decreased the employment outlets and level of income earned, thus, hindering the economic growth which shall be overcome in the near future.

Appendix
Table 1 : Private Final Consumption Expenditure : Annual Growth and Shares at 2004-05 prices
PE

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010QE 11

Annual Growth (per cent) Food, beverages, & tobacco Clothing & footwear Gross Rent, fuel, & power Furniture, furnishings, etc. 6.3 19.7 3.7 15.1 3.4 23.3 3.8 17.1 6.4 5 4.7 16.1 3.3 5 3.6 12.2 0.3 14.9 5.4 8.7 6.2 3.6 4.9 13

Medical care & health services Transport & communication Recreation, education, & cultural services

8.8 5.8 11

8.7 9.1 8.4

4.5 7.9 9.8

6.9 7.7 6.8

8.9 12 4

7.6 12.5 5.6

Miscellaneous goods & services Total private consumption

20.1 8.5

21.1 8.7

28.6 9.2

20.2 7.1

15.7 7.4

11.4 8.2

Share in Total (per cent) Food, beverages, & tobacco Clothing & footwear Gross Rent, fuel, & power Furniture, furnishings, etc. 40 6.6 13.8 3.4 39.1 7.3 13.2 3.6 37.3 8.3 12.6 3.9 36.3 8 12.1 4.1 35 7.8 11.7 4.3 32.7 8.4 11.5 4.4 32.1 8 11.1 4.6

Medical care & health services Transport & communication Recreation, education, & cultural services Miscellaneous goods & services Total private consumption

5 19.3 3 8.9 100

5 18.8 3 9.9 100

5 18.9 3 11 100

4.8 18.7 3 13 100

4.8 18.8 3 14.6 100

4.8 19.6 2.9 15.7 100

4.8 20.4 2.9 16.2 100

Source: CSO.

Table 2 : Growth in GDP at Constant Market Prices (per cent) 20062007 20072008 20082009 20092010 20102011 20112012

2005-2006

Total final consumption expenditure

8.7

7.7

9.4

7.7

8.3

8.1

1.1

Private final consumption expenditure Government final consumption expenditure

8.6

8.5

9.4

7.2

7.2

8.1

6.5

1.2 2

8.9 16.3

3.8 15.3

9.6 17.2

10.4 -1.6

14.3 11.6

7.8 11.1

3.9 5.8

Gross capital formation Gross fixed capital formation Changes in stocks Valuables

2.1 2.2 2.3 3 4 5 Exports

16.2 26.7 -1.6 26.1 32.6 48.2 9.3

13.8 31.6 13.7 20.4 21.5 47.5 9.3

16.2 31.3 2.9 5.9 10.2 111.8 9.8

3.5 -51.4 26.9 14.6 22.7 -75.3 3.9

6.8 63.2 57.6 -4.8 -2.2 230.5 8.2

7.5 37.4 32.4 22.7 15.6 38.9 9.6

5.6 2.9 12.5 14.3 17.5 -111.6 7.5

Less imports Discrepancies Growth in GDP at 2004-5 market prices

Source: CSO.

Table no-3:- GDP AT FACTOR COST

Year GDP at factor cost

20042005

2005-2006

2006-2007

2007-2008

2008-2009

20092010

20102011

9.5

9.6

9.3

6.7

8.4

8.4

6.9

TABLE NO- 4:- Private final consumption expenditure in domestic market

Private final consumption expenditure in domestic market(CRORE)

year
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

1,926,858 2,158,349 2,477,209 2,825,356 3,226,826 3,722,036 4,359,792

BIBLIOGRAPHY http://www.indiabudget.nic.in/ http://mospi.nic.in/Mospi_New/site/India_Statistics.aspx?status=1&menu_id=43 http://mospi.nic.in/mospi_new/upload/nad_press_release_31jan12.pdf