Consumer demand in India has been a key factor in the country’s growth, and the progress made in the October-December period is generating interest. While there are positive indicators suggesting an upward trend, there are also other factors that could dampen the story. So, what does all this mean?
To start with, there are clear signs of optimism. Newspaper ads for festival sales are abundant, covering a wide range of products from groceries to high-end jewelry, catering to all income groups. The sheer number of pages dedicated to these ads reflects the confidence of India Inc. in both manufacturing and services sectors. Additionally, the steady rise in Goods and Services Tax (GST) collections, which is a consumption-based tax, indicates an increase in consumption.
Furthermore, the Purchasing Managers’ Index (PMI) for both manufacturing and services has consistently remained above 55 throughout the year. Although there was a slight drop in October, it is not significant enough to undermine the overall positive trend. Industrial growth, as measured by the Index of Industrial Production (IIP), has also seen a 6% increase in the first five months of the year, with consumer durables experiencing a 5.7% growth in August after months of low or negative growth.
The aviation sector has also witnessed significant growth, with a 20.4% increase in domestic air passengers and a 31.4% increase in international air passengers from April to August. These numbers, although based on high base figures, suggest that demand is on the right track and that there are promising times ahead.
However, there are concerns regarding how the situation may unfold in the next two months. Several companies in the consumer space, while announcing their second-quarter results, have expressed cautiousness. They are keen to see how rural demand will play out in the third quarter, as this has been a weak point in the past. Additionally, while there was a surge in spending after the lockdown restrictions were lifted, fueled by pent-up demand, it remains uncertain whether this trend will be sustained.
The first advance estimate for kharif production indicates shortfalls in almost all crops compared to last year, which could impact rural income and hinder the revival of demand. Moreover, inflation has been a persistent issue, with a cumulative increase of 25% over the past three and a half years. Although inflation has previously been offset by pent-up demand, there are concerns about whether households will continue to spend amidst high inflation rates. Furthermore, while the prices of manufactured goods have stabilized, inflation has reduced real household income, potentially affecting consumption decisions.
Overall, the prospects for spending this season are uncertain when considering both sides of the story. While growth numbers appear positive, there are factors that could slow down the process, causing concern for companies. Rural demand is currently in a shadow, making urban demand the driving force. While it is still possible to be optimistic about stable demand, broad-based acceleration seems distant for now.
Disclaimer: The opinions expressed in this article are solely those of the author.
