Discretionary consumption will bounce back in 2021: CEA

‘Vaccines could help bolster spending in sectors affected by the pandemic’

Chief Economic Adviser Krishnamurthy Subramanian expects discretionary consumption to bounce back in 2021, along with spending on sectors affected by social distancing norms, given the promise of COVID-19 vaccines bringing the pandemic under control.

The CEA also said the advent of the Joe Biden administration and a change in the U.S.’ stance on trade would benefit India.

“There are two key areas that we would be watching — climate change and trade. I expect the Biden administration to go back to the traditional, more long-run thinking on this and that would be good for the world. India, especially, would be benefiting from the change in stance on trade because it has always played by the rules in the world order,” Dr. Subramanian said. “I do expect India to work closely with the Biden administration to bring about more prosperity to the world,” he said in a discussion on ‘Who will lead the global recovery?’ at the 2020 Milken Institute Asia Summit on Wednesday morning.

The use of vaccines could help hasten herd immunity and the pandemic was likely to come under control in the coming year, he said.

“Sectors that have been affected by the need for social distancing will definitely see demand coming up. Moreover, crises are periods where economic uncertainty increases and… households typically go into a savings mode. That affects discretionary consumption. I do expect that to revive as well, and a lot of pent-up demand on discretionary consumption and sectors affected by social distancing,” Dr. Subramanian added.

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