Covid-hit FY21: Demand shrinks all across, save food and household services

Biggest blow felt by restaurants and hotels, followed by clothing, footwear, transport and alcoholic beverages; surprisingly demand for health services also contracted

The first wave of Covid had a devastating impact on the economy, shaving off 7.3 per cent from the gross domestic product during 2020-21. Various segments of the economy were badly impacted that year.

When it comes to demand, practically every segment of the economy saw private final consumption expenditure (PFCE) declining during the year, barring food, non-alcoholic beverages and, to a lesser extent, house rent, water, electricity and gas. PFCE, which represents demand in the economy, rose 3.9 per cent during the year. This was a three-year low, showed official data on revised national accounts numbers.

The contraction impacted the production of food items, declining 2.7 per cent in the year against a rise of 2.7 per cent during 2019-20, the year that also faced an economic slowdown even as Covid-induced lockdowns were announced only towards the end of that year.  

Demand for house rents, water, electricity, gas  and other fuels remained almost flat, rising just 0.9 per cent in 2020-21. The growth was the lowest, at least since 2012-13.

Of 12 segments, fragmented on the basis of the criteria of the purpose of demand, PFCE crashed by a massive 54 per cent for restaurants and hotels. This is likely because of the obvious reason that lockdowns in contact-intensive services were imposed for a much longer period than other segments.

This was followed by 22 per cent contraction in demand for clothing and footwear and 19 per cent in transport. The decline in demand for transport was quite understandable as most people were working from home and there was a lockdown for many months during the year.

The same was the case with alcoholic beverages which saw PFCE declining by 15.7 per cent during 2020-21, furnishings, householding equipment and maintenance (13.4), recreation (11.1). However, the decline in PFCE in education by 2.9 per cent was the least among non-food segments since these were essential services.

PFCE shrank by 2.1 per cent even in the health sector. This seems to be surprising given that there were various theories of increase in out-of-pocket expenses during the Covid period. This may be because of the fact that for estimating growth we take figures at constant prices. If taken at current prices, PFCE for health purposes grew by 5.1 per cent during 2020-21, the highest since at least 2011-12.  However, it is not much higher than 4.8 per cent seen in 2019-20, given the severity of the pandemic.

Devendra Pant, chief economist at India Ratings, said barring necessities, PFCE in the remaining segments registered de-growth in 2020-21 which shows the current state of demand in the economy.

Increase in PFCE in health at current prices was mainly due to increase in inflation in that sector, he said. Inflation in the health sector remained over six per cent since January last year. It stood at 6.86 per cent in January this year, though slightly less than 7.09 per cent in December, 2021.

If one looks at the demand in terms of durability of goods, fast moving consumer goods saw flat demand during 2020-21. This has never happened since the new GDP series in growth terms was compiled from 2012-13.

On the other hand, demand for durable goods declined 16.6 per cent during 2020-21. This came even as the demand contracted 1.8 per cent in the previous year. Similarly, demand for semi-durable goods contracted 21.2 per cent during 2020-21 despite it falling by 1.5 per cent in the previous year too.

This amply showed that consumers postponed their purchases for the goods which were not as essential.

Demand for services declined 9.3 per cent during 2021-22. It had risen 6.4 per cent in the previous year.

Overall PFCE declined six per cent in 2020-21 for the first time since at least 2012-13. It is officially projected to rise 6.9 per cent in the current financial year by the first advance estimates. However, this growth is coming from a very low base of the previous year. Compared to pre-covid period of 2019-20, PFCE is pegged at -2.9 per cent in FY'22. The break-up of PFCE for FY'22 is not available.

Pant said PFCE in 2021-22 has picked up but has not reached the level of 2019-20. "There is some recovery (in PFCE), but the recovery is still weak,"he added.

Table: YoY growth in private final consumption expenditure (%)

Segment	2016-17	2017-18	2018-19	2019-20	2020-21
Food and non-alcoholic beverages	11.6	3.5	5.4	5.8	3.9
Alcoholic beverages, tobacco and narcotics	0.6	-1.2	13.5	1.0	-15.7
Clothing and footwear	0.5	1.9	4.1	-1.2	-22.2
Housing water, electricity, gas and other fields	3.1	3.0	3.5	3.6	0.9
Furnishings, household equipment and routine household maintenance	3.3	6.1	11.4	1.7	-13.4
Health	12.4	4.3	8.2	7.4	-2.1
Transport	10.4	19.8	9.2	8.3	-19.4
Communication	0.7	21.2	10.2	2.1	-6.0
Recreation & culture

2.1 13.6 6.5 1.2 -11.1 Education 9.9 11.4 11.0 3.4 -2.9

Restaurants & hotels

8.0 8.2 10.1 8.5 -54.0 Miscellaneous goods & services  9.8 0.8 7.0 6.3 -4.2 Total private final consumption expenditure  8.1 6.2 7.1 5.2 -6.0

Source: MoSPI