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LATEST NEWS UPDATES | There is a fundamental problem of demand today. At the core of it is incomes that aren't rising enough -Harish Damodaran

There is a fundamental problem of demand today. At the core of it is incomes that aren't rising enough -Harish Damodaran

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published Published on Aug 13, 2019   modified Modified on Aug 13, 2019
-The Indian Express

The certainty that producers once enjoyed — of finding buyers for their wares without doing much beyond minor price adjustments to bring supply and demand into equilibrium — has ceased to exist.

India traditionally never had a demand problem. On the contrary, its economy was always supply-constrained.

Proof of no demand paucity is that between 2000-01 and 2015-16, domestic consumption of both finished steel and cement roughly trebled, from 26.3 million tonnes (mt) and 92 mt, to 81.5 mt and 269 mt, respectively. During the same period, annual sales of passenger vehicles quadrupled (from 6.9 lakh to 27.9 lakh), while growing 4.5 times in the case of two-wheelers (from 36.3 lakh to 164.6 lakh) and five times for commercial vehicles (from 1.4 lakh to 6.9 lakh). Also, the total air passengers flown jumped nearly 10 times (from 14 million to 135 million) and the number of telephone connections 30-fold (from 36.3 million to 1059.3 million).

Supply not keeping up with demand — recall those long waiting periods for telephones, LPG connections and Bajaj Chetak scooters — was also manifested in inflation. Annual retail food inflation during the Nineties, and even the 10 years from 2006-07 to 2015-16, averaged 9.8 per cent. Not surprisingly, “supply management” measures — be it stocking limits under the Essential Commodities Act, export bans, zero-duty imports or selective credit control to restrict bank finance against cereals, pulses, sugar, oilseeds and raw cotton — were par for the course.

All this has changed in the last three years or less. The certainty that producers once enjoyed — of finding buyers for their wares without doing much beyond minor price adjustments to bring supply and demand into equilibrium — has ceased to exist.

Please click here to read more.

The Indian Express, 13 August, 2019, https://indianexpress.com/article/opinion/columns/indian-economy-supply-demand-slowdown-inflation-gdp-5899624/


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