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Resource centre on India's rural distress
 
 

Rural Consumption Stays Sluggish; Weather poses risk to recovery - Gireesh Chandra Prasad

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While India staged a double-digit rebound in household consumption in FY22 which is set to expand at over 7% this fiscal, experts point out that India’s consumption story has a weakness — rural folk tightening their belt in the face of inflation. 

The silver lining is that the worst may be over, unless El Nino conditions disrupt the arrival of the rains and dampen a consumption revival, experts said.

Gross domestic product (GDP) estimates show that private final consumption expenditure, the biggest growth driver, rebounded by 11.2% in FY22 on an inflation adjusted basis from an over 5% contraction in the year before and is set to further grow by over 7% this fiscal as per the second advance estimate.

But factory output data, though narrower in its coverage, shows where the weakness lies.

Factory output of consumer non-durables has seen a contraction of 1.3% in the first three quarters of this fiscal, while that of consumer durables, largely items consumed by the higher income group, has seen a growth of 3.4% in the same time, implying weakness in the purchasing power of rural India.

Inflation that came in the way of a sustained pick-up of consumer non-durables, leading to consumption demand getting skewed in favour of goods and services consumed largely by the well-off, according to analysts. If inflation doesn’t come down, then there is a bigger risk to consumption revival, according to them. Retail inflation measured by consumer price index was at 6.52% in January, a three-month high.

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