Private consumption in India has experienced a slight increase in the first two months of 2023, in comparison to the same period in the previous year, according to sales figures from several consumer product companies. CEO’s have stated that the outlook for the upcoming quarters is positive as commodity prices are expected to decrease and rural income is anticipated to improve. With the central government leading a significant capital expenditure initiative, CEO’s are optimistic that consumer spending will pick up in the months ahead.
Mayank Shah, senior category head at Parle Products, stated that there is a resurgence in demand, particularly in rural areas, due to rabi harvesting. He noted that it’s a bumper wheat crop this year, and farmers are expecting a good price for their crops since prices are high. Shah further added that demand has witnessed sequential pick-up since January, after being affected post-Diwali.
Figures for the first two months show higher automotive sales, electricity consumption, and other consumer goods sales. Analysts at CARE Ratings say that a falling rural-urban unemployment rate, improving consumer confidence, and tapering inflation expectations should support consumption.
In the October-December quarter (Q3) of 2022-23 (FY23), the growth needle moved by about 200 basis points – value growth moved from 6% to 8%, urban growth moved from 8% to 10%, rural growth moved from 3% to 5% with the commensurate reduction in negative volume across urban and rural. Although rising prices hit consumer wallets, there are palpable signs of a tamp-down, according to CEO’s. Sanjiv Mehta, Managing Director and CEO of Hindustan Unilever, noted that in the first half of 2023, there is going to be price growth, albeit at lower levels, which will essentially be a carryover from last year. Therefore, the rate of inflation will be lower, but companies have still not reached a level where they can say that commodity prices have started deflating.
Mehta believes that in the next two years, there will be a period of flux – price growth will become lower, but volume growth will start kicking in only when companies pass the benefits of lower commodity prices on to consumers. Mehta stated that if the Russia-Ukraine war ends, commodity prices may decrease. If commodity prices remain at inflated levels, there will be some degree of consumer stress.
Growth in private consumption had moderated to 2.1% in Q3FY23, a notable deceleration from the 9.7% reported in the preceding July-September quarter. CARE Ratings stated that the ratio of private consumption to gross domestic product has improved to 61.6%, from 59.5% in the previous quarter. The tapering off of pent-up demand and high inflation affecting non-essential consumption could be reasons behind lower consumption growth.
Overall, the CEO’s have expressed optimism regarding the upcoming quarters, especially with rural income picking up, commodity prices expected to taper off, and the central government’s capital expenditure drive. Analysts at CARE Ratings suggest that falling unemployment, increasing consumer confidence, and tapering inflation expectations could support private consumption in the months to come.
