COVID Might Shift India’s Growth Model

The Covid-19 pandemic could act as an inflection point to shift India's growth model from being consumption driven to investments-led. In its Ecoscope report, Motilal Oswal Financial Services, said: "With Covid-19 hurting India's 'Household' (HH) and 'Government' sectors adversely, the continuity of strong consumption growth is in question."

"On the contrary, with listed companies' financial positions improving and an uptick in household investments in the Real Estate sector (called physical savings), the narrative of investment-led recovery is gaining momentum." The report prescribed that various economic participants – households, governments, listed companies, and unlisted corporates — to increase their fixed asset investments in the immediate future based on their financial position.

The Covid-19 pandemic could act as an inflection point to shift India's growth model from being consumption driven to investments-led. | Photo by Fusion Medical Animation on Unsplash

At present, the listed and unlisted corporate sector accounts for only about half of total investments in India. The 'HH' sector including unincorporated enterprises accounts for 35-40 per cent in India's investments, while the remaining 12-13 per cent is contributed by centre and states governments. Besides, the report cited that demand environment is expected to remain subdued due to weak financial position of 'HH' and government sector.

"Despite household investments picking up strongly in 2HFY21, given that Indian households bore the maximum brunt of Covid-led losses in CY20 (and CY21), we believe household spending would remain subdued over the next few years." It further pointed out that unless 'HH', 'Unlisted Corporate', and government sectors can improve their financial positions — leading to a demand uptick — a strong revival in investments seems challenging. (IANS/ MBI)

Keywords: India, covid, pandemic, growth, household, government, investment