A look at Consumption Hypotheses

In this unpredictable situation, the future of the Indian Economy looks bleak. How much to spend? How much to save?

Answering these questions would be difficult for all the three sectors-household, Government and the Private Sector. Starting September, consumption will increase because it is considered auspicious to buy new products such as cars and televisions for the main Hindu festival, Diwali, to be celebrated in November.    

The consumption hypotheses proposed by certain eminent economists would be useful in forecasting the future consumption during these situations. The need for essentials like fuel, petrol, LPG cannot be compromised and the prices of these commodities are skyrocketing. But there is a shortage in consumption of this particular product. Accordingly, there is a shortage in consumption with an expectation that price of the product will come normal in future but the hike in the price of petroleum is permanent for a long term [which follows the Permanent Income Hypothesis-Milton Friedman.]

Other industries like the airline, bullion market and basic items like plastic industry are also facing the heat. Prices have been fluctuating in the recent times and there is no stability as of now. The need for instant gratification, hypothesis proposed by David Liabson, has always been a significant part of human psychology which should be curbed to increase savings and in turn help in future investments.

So it remains to be seen whether we need to bother about future consumption now or focus on the current consumption issues.

Contributed by:

Gayatri K

Ayushi Agarwal

Pooja Agarwal

Section A, Economics

Batch of 2013-15