India’s consumer spending may recover in second half of the year: Fitch
2 min read 08 Jun 2021, 01:28 PM ISTWhile new daily covid cases in the second wave have been declining and authorities are looking to relax restrictions, it holds a cautious but optimistic outlook that consumer spending will start to build up in the second half of 2021
PremiumNEW DELHI: India's consumer spending will grow at 9.1% in 2021, after having contracted 9.3% in the previous year, with recovery expected in the second half (July-December) of this calendar year, Fitch Solutions said on Tuesday.
“We hold an optimistic outlook for the Indian consumer over 2021, with real growth in household spending forecast at 9.1% y-o-y. This marks the start of a recovery from the -9.3% y-o-y contraction in real household spending estimated over 2020. Despite the projected growth in 2021, we note that the real value of total household spending will remain below pre-Covid-19 levels (2019), with real household spending forecast to reach a total of Rs73.3 trillion in 2021 compared to Rs74 trillion in 2019. This indicates that the recovery of the consumer and retail sector in India will spill over into 2022," Fitch Solutions, an affiliate of Fitch Ratings, said in a report on Consumer Outlook 2021.
The research firm said while new daily cases in the second wave of the pandemic have been declining and authorities are looking to relax restrictions, it holds a cautious but optimistic outlook that consumer spending will start to build up in the second half of 2021. Fitch Solutions, however, flagged community transmission as a key risk to its outlook, particularly if lockdowns are reintroduced nationwide and consumers delay purchases to reduce health risks, which will weigh heavily on consumer spending recovery in 2021.
In 2020, 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.
Poor consumer demand has hit credit growth as people postponed their non-essential spending. In March 2021, India's CSI declined to 53.1, after displaying a promising upward trend from its five-year low in September 2020 to 55.5 in January 2021. Similarly, the FEI dipped from 117.1 in January 2021 to 108.8 in March 2021, indicating that consumers hold a gloomy outlook of the current and short-term economic situation, which will weigh heavily on spending.
In 2021, households’ disposable income is projected to grow to Rs416,400 in nominal terms, surpassing pre-covid-19 levels of Rs408,800 in 2019, which will help support domestic demand.
“However, we highlight those inflationary pressures may weigh down on spending, which will average at 5% in 2021, outpacing income growth. As such, the Indian consumer will remain under pressure over 2021 and so spending growth is stemming from a lower base," Fitch said.
Fitch Solutions has projected India's economy to grow at 9.5% in 2021 after having contracted 7.9% in 2020. “Over 2021, average unemployment as a percentage of total labour force will remain elevated at 8% and is projected to fall below pre-covid-19 levels only in 2023. We highlight that this unemployment rate may be underestimating the real rate of unemployment in the country, which poses a risk to our outlook, if unemployment is more severe than forecasted. People returning to work, but working fewer hours than pre-covid-19, or taking lower-paying jobs will put further downside pressure on disposable incomes," it added.
"Exciting news! Mint is now on WhatsApp Channels 🚀 Subscribe today by clicking the link and stay updated with the latest financial insights!" Click here!
