Economy
The festival season may boost consumption, but for how long?
Summary
India’s consumption story remains mixed, with consumer sentiment showing signs of weakness and long-term trends revealing underlying stress in key high-frequency indicators.
NEW DELHI : India’s weak consumption patterns had policymakers worried until the June quarter, which finally saw a surprising turnaround. And now, hopes are pinned on the ongoing festival season for a further impetus to sales and consumption. Overall, India’s consumption story remains mixed, with consumer sentiment staying low and long-term trends revealing underlying weakness in key high-frequency indicators.
Since the September quarter of 2022-23, private final consumption expenditure (PFCE), an indicator of consumption demand, saw lacklustre growth, pulling down the gross domestic product (GDP) growth. However, it changed in the June quarter of 2023-24 when PFCE grew 12.4% in nominal terms, surpassing the 9.7% overall growth in the economy. Since the PFCE accounts for 50-60% of India's GDP, it has an outsized influence. If the PFCE is removed from the GDP, the growth in the June quarter would have been just 5.8% in nominal terms.
According to Praveen Sahay, research analyst at PL India (Prabhudas Lilladher Pvt. Ltd), the trend in consumer durable sales was weak, particularly in rural and semi-urban India, in 2023-24. But the improvement seen in the June quarter is likely to sustain. “As we approach the festive season, we anticipate improvement in this space based on companies' expectations and our channel checks for white goods."
Also Read: Private consumption returns, boosted by rural demand
Vishesh Dora, who leads the data insights practice at Bizom, stated that consumption during Onam showed early signs of healthy festive consumption and is expected to rise further during Durga Puja, Diwali, Christmas and New Year season when consumers tend to splurge on household goods, jewellery, outings and gifts.
Consumption conundrum
While this points to the beginning of a turnaround in the consumption story, the long-term trend shows that key high-frequency consumption indicators have trailed their five-year average. Domestic passenger vehicle sales, tractor sales and domestic air passengers, more often than not, have come in below their five-year trend during the past year. Moreover, there seems to be a dissonance between the consumer and the producer economy. The key indicators in the producer economy—composite purchasing managers’ index, core sector growth and non-food bank credit—have remained above their five-year trend.
