Pandemic, Taxes Pinching Indian Consumers’ Pockets, Fitch Says
The pandemic-induced decline in real wage growth and high taxes are leaving little money in the hands of the Indian consumer, the backbone of the economy, according to new research from the local unit of Fitch Ratings.
Households are struggling with job losses and salary cuts on the one hand, and higher health-care expenditure on the other, the analysis by India Ratings and Research showed. Add to that the burden of taxes, particularly indirect levies, and households are left squeezed for cash.
While India Ratings’ analysis of salaries of 2,000 non-financial corporates pointed to the risk of declining real wage growth, which could limit demand both in the near- and medium-term, a separate review showed that the share of total tax burden on households has risen to 75% from 60% in the fiscal year ended March 2010.
While the situation prior to 2010 was marked by a consumption and investment boom, it has worsened lately with consumer spending growth declining to 5.5% from an average 7.5% seen between the fiscal years 2016 to 2019, India Ratings said. Private consumption makes up some 60% of the economy.
The problem has been confounded by a steep increase in fuel taxes, which, according to India Ratings, is impacting household budgets both directly and indirectly.
“With no relief in sight on the tax front, households are facing a double whammy,” analysts at India Ratings wrote. “The challenge, therefore, is emerging on the demand side.”
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