Businesses are optimistic, but there are gaps in India's consumer narrative

 Businesses are optimistic, but there are gaps in India's consumer narrative

Numerous polls indicate that Indian businesses' attitudes are becoming more positive. However, when it comes to customers, things are far from simple.

When businesses see evidence of strong home spending taking root, they get hopeful about the future. However, it seems that the two are at odds right now.

According to SaaS technology platform Unicommerce, the Great Indian Festive Spending Holiday has been doing very well. Indian consumers have increased their online purchases by 22% in value and by 39% in volume over the previous year.

The National Council of Applied Economic Research's most recent Business Confidence Index, which covers 500 companies, shows "all-round improvement" to 140.7 in July-September 2023 compared to 128 in the previous quarter, reflecting trust about the performance of the economy. Surveys also provide a strong picture of businesses' hopes and expectations.

Similar results appear in other polls; in the last quarter of 2023, Dun & Bradstreet's Composite Business Optimism Index increased by 0.4 percent to 70.3.

Arun Singh, global chief economist at Dun & Bradstreet, stated on November 8 that "while the global economic slowdown has influenced consumerism, businesses are expecting higher profitability with easing inflation as well as increased industrial production, despite the fact sales volumes remain relatively stagnant, along with order books show modest growth."

But customers seem to be feeling a little differently.

Gaps in the narrative of consuming

As per the statistics issued on November 10, India's industrial growth in September dropped to a three-month low of 5.8 percent, far lower than the 7.4 percent predicted by experts. Consumer goods were the main factor slowing development.

The output of non-durable items increased by 2.7% in September compared to a 9.6% increase in August, while the production of consumer durables increased by only 1% year over year. This is a decrease from 5.8% in August.

Production of consumer non-durables increased by 6.8% during the first half of 2023–24 compared to the same six-month period in the previous year, while production of consumer durables decreased by 0.7 percent.

Economists at Nomura claim that the September figures for industrial output growth are poor because of "cracks in the consumption story".

The Nomura India Normalisation Index for industrial output indicates that the consumer durables sector is not only lagging behind but also dropping below pre-pandemic levels. The index does this by excluding base and seasonal influences and setting the pre-pandemic level at 100.

In a report published on November 10, Nomura economists Aurodeep Nandi as well as Sonal Varma said, "This speaks to weaker flexible demand among consumers."

Also Read: In 2022–2023, household net savings reached a multi-decade low.

The economists at QuantEco Research concurred, noting that consumption-oriented activity "remains sluggish".

According to Sunil Kumar Sinha and Paras Jasrai of India Ratings and Research, "a widespread and sustained improvement in IIP (Index of Industrial Production) growth will remain tricky so long as these segments do not revive holistically."

Moderation in consumption to come?

India's consumer narrative is still developing. While declining inflation is a good thing, "pain points in the form of elevated prices of specific food items continue to persist," according to ratings organization CareEdge. The current and forthcoming elections may provide government "relief spending" in the short term to boost rural consumption.

"The recent substantial a decrease in LPG price, promised increase in eligibility of food subsidy, and the speculated amplification of PM Kisan Nidhi Scheme will support rural purchases to some extent," said QuantEco Research.

Urban consumption, which has recently been the main driver of premium goods expenditure, will, however, likely experience challenges going forward. Tanvee Gupta Jain, the India economist at UBS, projects that household consumption growth will normalize in 2024–2025.

On November 8, Jain said, "We anticipate that consumption growth will gradually normalize due to softening corporate salaries, flattening personal loan growth, peaking government welfare expenditure after the election, and the delayed effect of monetary tightening on families' disposable income.

India's recovery from the epidemic has taken a K-shaped form. A perfect storm for the economy may be building if urban consumers tightened their belts for the same reasons described above.