Consumption function in India

Abstract

In the paper, we test forthe consumption function in Indian economy for the period 1980-81 to 2010-2011. We take the ratio of Consumption to Gross Domestic product as our dependent variable. There has been a secular decline in Consumption to GDP ratio in India over the years. The results show that inflation, export to GDP ratio, and growth rate of GDP are significant determinants of final consumption expenditure in India. While inflation; saving to GDP ratio; and growth rate of GDP negatively and significantlyaffect consumption expenditure, export to GDP ratio; and lagged consumption have positive and significant effect on the level of consumption expenditure.