Inflation or not, Indians see brighter days ahead

At a time confidence fell in key Asian markets, Indian consumers turned upbeat in the December quarter, a McKinsey & Co. survey of 5,100 Asians showed. According to its quarterly APAC Consumer Pulse Insights survey, 81% of urban Indian consumers showed confidence in the country’s economic recovery and growth, up from 75% in the September quarter. Meanwhile, consumer confidence fell in China (to 67%, down 4 percentage points, or pp), Australia (23%, down 6pp), Korea (13%, down 6pp), and Japan (10%, down 3pp).

McKinsey said the surveyed Indian households remain “positive" on spending on discretionary categories such as foreign trips and personal care services, while their peers in other APAC countries look to trim them.

“Our APAC Consumer Pulse Insights reveal that Indian consumers stand out in terms of confidence as compared to their regional peers, highlighting attitudes towards spending and overall perception of economic resilience," said Abhishek Malhotra, partner, McKinsey.

Private consumption is a powerful engine of the Indian economy, and an increase in consumption holds the promise to lift India’s growth higher.

“Consumer confidence seems to be up marginally as we speak," said Krishnarao Buddha, senior category head, Parle Products. “The congregation of Lord Ram in Ayodhya also created a lot of buzz, with freebies being doled out. Also, the run-up to the general elections will also definitely bring in a lot more cheer and this will continue almost till May. We really hope that the monsoon this year is normal," he added.

The last two years have been marked with geopolitical tensions followed by a period of high inflation that has had an adverse impact on households. Large consumer goods companies have been cutting prices; however, prices of day-to-day goods remain high.

During its post-earnings call, India’s largest packaged consumer goods company Hindustan Unilever Ltd said it remains cautiously optimistic in the near term. “We expect the gradual recovery in market demand to continue, aided by increased government spending, recovery in winter crop sowing and better crop realizations. At the same time, rural income growth and winter crop yields will be key factors that we determine the pace of recovery."

However, many Indians also believe they may be spending more on essentials over the next three months, which may hurt spending on appliances and small packaged consumer goods. Retail inflation hit a four-month high of 5.69% in December, rising from 5.5% in November, and remains close to the higher end of the central bank’s tolerance range of 2-6%.

Meanwhile, a survey of consumers in India’s tier-2 and tier-3 cities by The Bharat Lab noted over 50% reporting a positive outlook on the Indian economy in the coming year, while 37% took a neutral stand. The Bharat Lab is a think tank set up by advertising agency Rediffusion along with Lucknow University. The survey attributed the optimism to good career prospects and positive personal life circumstances for nearly 76% of respondents.

“12% also drew optimism from robust macro-economic conditions and 4% went ahead to report the political climate as their number one driver of optimism," said the report, which surveyed 1,565 individuals. However, 73% of those surveyed in these markers also reported some concerns around personal finances in 2024. While education was the primary concern for students in 2024, 44.4% of participants expressed health and safety as a significant concern for 2024. Over half of those surveyed expect national economic progress to translate into personal advancement in 2024. Meanwhile, 42.1% were optimistic about a lifestyle upgrade in 2024, while 20% are looking at travel during the year.

Separately, research firm Ipsos noted an improvement in consumer confidence in January. India topped rankings across all the 29 markets polled at 66.5pp, according to the finings of the Refinitiv-Ipsos survey.

Experts pointed out that surveys capture perceptions but economic data do not corroborate the overall consumer confidence.

“If you look at the first advance estimate for 2023-24 from the statistics ministry, although overall economic growth rate is projected at 7.3%, the growth of PFCE, which accounts for two-third of the economic output, has been disappointing," said Sunil Kumar Sinha, principal economist at India Ratings & Research. Household spending on goods and services (or PFCE) is forecast to grow annually at 4.4% in 2023-24, adjusted for inflation.

“Even if you look at the industrial output (IIP) data, there also, consumer durables and non-durables do not suggest a very encouraging consumption demand or the overall consumer confidence. There seems to be a disconnect between hard economic data and what busy malls, automobile sales, etc., may suggest. It seems the K-shaped economic recovery is playing out," said Sinha. K-shaped recovery suggests uneven recovery across different segments of the economy.

On 8 December, the RBI had said, quoting its latest bi-monthly consumer confidence survey of over 6,000 respondents, that consumer confidence remained stable with its current situation index (CSI) unchanged at 92.2 from the previous round. Higher pessimism on current general economic situation and employment was counterbalanced by a positive turnaround in sentiment on current income, the Reserve Bank of India said.

Experts also pointed out that food accounts for a bigger share of the consumption basket of the less economically well-off and food inflation would have affected spending on other items. Consumer food price inflation was at 9.53% in December 2023, compared to 4.19% in the same time a year ago, as per data from the statistics ministry. The ministry has also projected a 1.8% agriculture growth in the current fiscal owing to erratic monsoon, against a 4% growth in the year before, but labour intensive construction sector is projected to grow at double digits this fiscal.

The finance ministry’s latest half-yearly review said it expects consumption demand to sustain. Private Final Consumption Expenditure (PFCE) registered a growth of 4.5% in the first half of the fiscal year, with its share in GDP increasing to 60.4%, the highest in H1 since FY12, barring the pandemic year FY21’.

“There is a marked upturn in consumer sentiment in the new year. Sentiment around jobs has seen a major rebound, with hiring looking up in recent times," said Amit Adarkar, CEO, Ipsos India."Consumers are also bullish about spending and there is positive sentiment seen for the economy. It is heartening to see the momentum continuing post the festival season. With this upturn, India tops the chart globally in terms of consumer sentiment. India is on a growth path and hopefully the upcoming budget will provide further impetus to the growth agenda," Adarkar said.

“Urban Indian respondents look to spend most on sports and outdoors equipment and supplies, followed by international flights, alcoholic beverages, personal care services and cruises. Among Asian peers, China’s consumers are looking at discretionary spends in sports and outdoors equipment & supplies, followed by kitchen and dining, apparel, travel by car and entertainment away from home," the McKinsey survey said.

Gireesh Chandra Prasad in New Delhi contributed to the story.