Lack of domestic demand is holding back animal spirits in economy

In its annual report for 2018-19, the Reserve Bank of India (RBI) has stated that the lack of domestic demand is holding back the animal spirits in the economy and emphasized the need to revive consumption demand and private investment during 2019-20. The report claimed that the economy is undergoing a cyclical slowdown rather than a deep structural one. It also stressed that issues related to “land, labour and marketing” will need to be addressed as a broad-based downturn is underway in sectors such as manufacturing, trade, hotels, transport, communication and broadcasting, construction and agriculture. The term ‘Animal spirits’ in Economics was coined by British economist John Maynard Keynes in his 1936 book ‘The General Theory of Employment, Interest, and Money’ to explain the persistence of economic fluctuations under capitalism. The term refers to the emotions and instincts that guide the behaviour of investors and consumers in a market economy. It is economic optimism and confidence that drives investors to make more investment even when there is uncertainly. In simple words, Animal spirits shows how human psychology drives the economy.