Fitch pares 2021 household spending forecast for India | Mint
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Business News/ Economy / Fitch pares 2021 household spending forecast for India
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Fitch pares 2021 household spending forecast for India

India's household spending contracted 9.3% in 2020, hit by the first wave of the coronavirus pandemic. Fitch Solutions said total household spending in 2021 in real terms is forecast to touch Rs72.6 trillion, below the 2019--pre-pandemic--level of Rs73.5 trillion

Last year, consumer confidence in India took a hit and fell to a five-year low of 49.9 in September 2020. (File Photo: HT)Premium
Last year, consumer confidence in India took a hit and fell to a five-year low of 49.9 in September 2020. (File Photo: HT)

NEW DELHI : Fitch Solutions on Thursday trimmed its 2021 India household spending forecast to 8.9% from 9.1% estimated in June, citing tepid vaccination pace in the country. In its latest India Consumer Outlook, however, Fitch Solutions said consumer spending will recover to pre-pandemic levels in 2022.

"India's vaccination drive has been tepid with 32.5% of the population receiving at least one vaccine dose (as of August 21 2021, latest data available). This is slightly below the Asia average of 33.0%. We believe that mass vaccinations will further accelerate the unwinding of restrictions," Fitch Solutions, an affiliate of Fitch Ratings, said.

India's household spending contracted 9.3% in 2020, hit by the first wave of the coronavirus pandemic. Fitch Solutions said total household spending in 2021 in real terms is forecast to touch Rs72.6 trillion, below the 2019--pre-pandemic--level of Rs73.5 trillion. “As a result, we believe that the recovery of India's consumer and retail sector will spill into 2022, where we forecast real household spending growth to reach 7.1%. In 2022, we project real household spending to reach a total of 77.7 trillion. This is 5.8% larger than total spending in 2019, indicating that a full consumer spending recovery will take place in India in 2022."

Last year, consumer confidence in India took a hit and fell to a five-year low of 49.9 (September 2020) and 97.9 (May 2020) for the current situation index (CSI) and future expectations index (FEI) respectively, according to surveys conducted by the Reserve Bank of India. 

"The poor consumer demand has impacted credit growth as people postponed their non-essential spending. In July 2021, India's CSI scored 49.0, despite the latest wave of Covid-19 outbreak tapering off, indicating that consumers hold a gloomy outlook of the current and short-term economic situation, which will weigh heavily on consumer spending. However, we note that the FEI is trending upwards, from a low of 96.4 in May 2021 to 104 in July 2021, which suggests that consumer spending on big ticket items will likely be deferred until the economic and health situation in the country stabilizes," Fitch Solutions said.

Fitch Solutions said its forecast of a recovery in real consumer spending growth in India in 2021 is in line with its Country Risk team's projection that the domestic economy will grow at a real rate of 9%, recovering from the 7.3% contraction recorded in 2020. “Economic growth will be underpinned by consumer spending, easing unemployment, and continued investments in the country's infrastructure sector, thus creating more jobs. With India's economy expected to fully recover in 2021, we believe that more conventional growth patterns will return in 2022. As such, we project that the country's economy will expand at 7.6% in 2022," it added.

Fitch Solutions said it believes that elevated retail inflation in India is a key risk to consumer spending over the remainder of 2021, as it has the potential to erode purchasing power. 

“In India, we note that CPI (consumer price index) has been ticking up, reaching a peak of 6.3% in June 2021. However, our Country Risk team projects that inflation has already peaked in H121 and that it will average 5.7% over 2021 and 4.1% over 2022. As a result, we do not believe that these levels of inflationary pressures will derail our consumer outlook. We also note that India's central bank, the Reserve Bank of India maintained its stance to keep monetary policy accommodative for as long as necessary to sustain while ensuring that inflation remains within its target range of 4±2% going forward," it added.

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Published: 26 Aug 2021, 01:17 PM IST
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