Slowdown In Consumption Hit Growth
The Reserve Bank of India's Report on Currency and Finance 2000-01 pinpoints the deceleration in growth after 1997-98 to the slowdown in private consumption and investment demand. But the central bank, which has always frowned upon increased government expenditure in salaries and wages, now finds that the Pay Commission-mandated hike in the salaries of government staff actually saved the economy from sinking deeper.
Since 1997-98, the slowdown in private consumption has been substantial, the report says, noting that its average contribution to growth has slipped to 3.0 percentage points during 1997-98 to 1999-2000 compared with 4.5 percentage points during 1994-95 to 1996-97.
The contribution of investment demand to growth has slipped to 2 percentage points which is lower than that of 2.9 percentage points during the high growth phase of 1994-95 to 1996-97.
What has been holding the fort has been government consumption, which the report says has "witnessed a counter-cyclical movement". According to the report, this indicates that the "discretionary fiscal stabilisers" in the form of Pay Commission hike for central government employees has had a role in the limited context of holding up aggregate demand over the period of the downturn.
Does that sound like a green signal for another payhike for government staff to kickstart the economy in the current year?
Forget it, the report hastens to caution after some complicated mathematics. an increase in government consumption expenditure has an insignificantly low impact on the current gross domestic product--which means the results will not be available in a hurry--and it will take some time before "the intended demand boost takes effect."