With appropriate figures, discuss the significance of household sector in Indian economy.

Published: November 14, 2017

The household sector which is comprised of all non-government, non-corporate enterprises viz. farm and non-farm businesses, sole proprietorships,  charitable trusts, religious organisations and educational institutions,  is the largest sector in the Indian economy as it stood at 43.6% of GVA in the year 2015-16. It is therefore vital to the overall health of the economy.
Pointers to the sector:

  • Gross Capital Formation/GDP ratio: There is an apparent investment drought which is not a good sign for economic growth. This has been primarily due to low capital utilisation in the industry because of which Gross Capital Formation/GDP ratio fell. This fall has been spurred by the drop in Gross Capital Formation of the household sector which has come down from 15.9% in 2011-12 to 10.9% in 2015-16.
  • Disposable Income: There is a slowdown in the growth of disposable income from 80.5% of GDP in 2011-12 to 78.4% of GDP in 2015-16.
  • Savings: This is an important indicator as there is an apparent fall in savings as a percentage of gross household disposable income from 29.4% to 24.4% over the same span. This trend points to the fact that households are consuming more than they are saving. Lower inflationary pressures can be the reason for increased consumption along with lower subsidies.
  • Capital Formation: Another notable trend is that various households are spending less on capital formation from their savings. Thus, capital formation as part of household gross savings has dropped from 67.3% to 57% over the same period. However, households are moving towards financial savings as against physical savings.
  • Household Capital Expenditure (Capex): Real estate, trade and agriculture are three primary sources of Capex. The sector is seen to be struggling with all 3 dimensions.

The overlook outlook for the sector remains bleak which in turn doesn’t augur well for a quick revival of investment and economy on the whole.

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