The curious case of high consumption growth projections
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The advance estimates for this year’s economic growth have again placed the burden of growth on consumption expenditure in the March quarter. Working backwards from the whole year’s gross domestic product (GDP) numbers, we get private final consumption expenditure, or PFCE, (real) growth of 11.7% for the three months ended March.
That growth in PFCE comes after a 6.4% growth in the third quarter and on the top of a decent 6.6% growth a year ago. At the same time, the fourth quarter GDP growth is estimated at 7.7%, not very different from the preceding three quarters.
So what’s the story with consumption?
While government statisticians are predicting a growth which is the highest in the last at least eight quarters, the private sector—economists, consumers and companies—are not exhibiting the same degree of optimism.
For instance, the MNI India Consumer Survey shows that consumer confidence has fallen nine times in the last 12 months and in February, remained very close to December’s record levels. Nielsen data show packaged consumer goods industry growth across categories from biscuits to detergents has slowed to 5-6% in January and February, down from 11-12% in the March 2015 quarter.
Or consider automobiles. While passenger vehicle sales grew in February—and a measly 2% at that—owing to utility vehicle sales growing, car sales fell for a second straight month.
Industry captains, too, haven’t guided for such a sharp recovery in consumption, as portended by the advance estimates. Leaders from consumer goods firms such as Dabur India Ltd and Marico Ltd have said that the benefits from rural reforms announced in the Union budget might take as long as three quarters to kick in and consumption continues to remain soft.
Meanwhile, leading indicators published by State Bank of India and Nomura, too, aren’t that optimistic about overall growth and highlight downside risks.
Summed up, it means that the factors for weak consumption growth of the past two years—rural distress, weak macroeconomic sentiment and the lack of a pick-up in discretionary demand—haven’t really turned around. While budget measures, a good monsoon and pay commission impact may very well push up consumption the next fiscal, a 11.7% growth in January to March looks tough.
One final note: in the previous fiscal year’s advance estimates, consumption growth for the March 2015 quarter was projected at 11.8%. When provisional numbers in May 2015 were released, PFCE growth was reported at 7.9%. After revisions, it stands at 6.6% now.