The Economic Survey for 2008-09 has expressed conncern over the sharp dip in growth of private consumption, though not unexpected. Private consumption, as a percentage of GDP, declined to 2.9 per cent in 2008-09, from 8.5 per cent in 2007-08
The survey notes that four factors may have contributed to this slowdown.
First, it could be due to the wealth effect, resulting from decline in the equity and property prices. Secondly, there is uncertainty in the labour market and decline in employement, the government said in a statement summarising the Economic Survey.
The third factor that contributed to the drop in private consumption is the cutbacks in consumer credit by private banks, non-banking finance companies (NBFCs) and other lenders. Further, the survey notes that consumers may deferred spending.
During slowdown a dominance of precautionary motive may induce consumer to defer their spending decisions or shift to unbranded altneratives, the Survey observed.