
Mint Explainer: Why urban India is spending less

Summary
- Rising costs, wage pressures, and regulatory actions are reshaping urban spending habits. Here’s a closer look.
Urban India’s shopping carts are losing their heft. After a pandemic-era spree on everything from electronics to grooming services, city dwellers are pulling back, leaving manufacturers and service providers grappling with sagging sales. The slowdown contrasts sharply with rural households, which continue to spend on refrigerators, two-wheelers, and even cars, creating a tale of two economies within India.
For businesses, the urban cool-off isn’t just a speed bump—it’s a recalibration of the post-pandemic boom, with implications stretching across sectors from automotives to fast-moving consumer goods (FMCG).
Read this | Q2 results: How urban slump, input costs threw FMCG off gear
At Maruti Suzuki India, the country’s largest carmaker, the slowdown is unmistakable. Sales of its mini and compact passenger cars shrank in the September quarter of FY25 (Q2FY25), even as utility vehicles like the Grand Vitara and Fronx SUV found takers. To cushion the blow, Maruti offered an average discount of ₹29,300 per car in the second quarter. Yet, the share of mini and compact cars fell to 44.9% of total sales from 48.8% in the prior quarter, signalling a significant shift in buyer preferences.
Strengthening rural demand provided some solace, but urban stagnation is dragging overall growth.
Festivals in October offered a temporary boost, with passenger vehicle and two-wheeler sales jumping. However, industry experts fear the rebound may not last through the year, with consumer sentiment remaining subdued.
Echoing the sentiment, Britannia Industries laid bare the challenges during its second-quarter earnings call. Metros, which account for 30% of FMCG sales, contributed disproportionately to the slowdown, with demand shrinking 2.4 times faster than in other regions. The company highlighted stress in urban households, particularly among non-salaried workers, whose wages rose by just 3.4% over the past year, compared to 6.5% for salaried employees.
Some consumer durables companies, however, held steady. Firms like Crompton Greaves Consumer Electricals saw resilient demand for refrigerators, air conditioners, and fans—especially in the premium segment. Notably, Crompton even raised prices, leveraging its position as a price setter, without significant impact on sales.
Growth in consumption demand began tapering in the third quarter of 2022-23 after an initial post-pandemic rebound, as reflected in personal final consumption expenditure (PFCE) data. Part of the decline was attributed to rural distress caused by uneven monsoon rains.
A brief resurgence in the first quarter of the current financial year offered hope, with consumption growing by 7.4%. The 7.4% growth in consumption sparked hopes of a sustained recovery, says Devendra Kumar Pant, chief economist at India Ratings and Research. However, those hopes were dashed by the lackluster performance reflected in second-quarter corporate earnings.
Mint unpacks the reasons behind slowing consumer demand in urban India.
Demand saturation
In the aftermath of the Covid-19 lockdowns, consumer spending surged as households dipped into their accumulated savings. Early on, spending focused on essentials like cleaning and grooming products, as well as electronics and appliances. As the services sector reopened and travel restrictions eased, demand shifted to high-contact services such as personal grooming and travel—a phenomenon popularly dubbed "revenge spending."
The pandemic also reshaped living habits. With remote work and online schooling becoming the norm, consumers sought larger and better-designed homes, driving a spike in demand for residential upgrades.
However, this phase of heightened consumption has run its course, and spending is now normalizing. A moderation in demand was expected as pandemic-era savings dwindled, notes QuantEco economist Yuvika Singhal. She adds that this normalization of urban demand may persist for a few more quarters. That said, consumption among higher-income groups remains robust, while sales of durables and household goods are now largely fuelled by the replacement market.
Slowing income growth
The slowdown in income growth for large sections of the urban population has been a key factor in weakening demand in cities.
According to the Periodic Labour Force Survey (PLFS) data cited in Britannia’s presentation, the non-salaried workforce accounted for 51% of the urban population in the first quarter of 2024, a slight increase from the same period a year ago. Crucially, nominal wages for this segment grew by a modest 3.4% over the past 12 months, compared to 6.5% growth for salaried workers.
There’s stress in almost 51% of the workforce sitting in urban areas. This double whammy is creating a demand shortfall in urban and especially metro areas, said Varun Berry, Britannia’s vice chairman and managing director, during the company’s second-quarter earnings call with analysts.
Pant of India Ratings and Research noted that a sudden stop effect has taken hold among certain sections of consumers facing stagnant or contracting incomes. Income uncertainty erodes consumer confidence, he explained. Initially, consumers may dip into savings or even borrow to sustain spending, but as income concerns deepen, discretionary spending gradually declines before coming to a halt.
The outlook remains grim if job market conditions and salary increments continue to lag. The Naukri JobSpeak Index highlights a tight job market for those with under three years of work experience, while prospects remain more favourable for seasoned professionals.
Rising inflation
The surge in commodity prices has added to consumer woes, forcing businesses to pass on a portion of the increased costs to households. Compounding this, household budgets have been strained by volatile vegetable prices, as excessive rains led to crop losses in several parts of the country. A sharp hike in import duties on cooking oil also impacted both households and commercial establishments.
Read this | Mint Primer All about the inflation spike: how, why when
Crisil’s monthly food plate cost indicator revealed that both vegetarian and non-vegetarian meals became significantly more expensive in the July-September quarter compared to the preceding quarter, driven by rising prices of onions, potatoes, tomatoes, and pulses. NR Bhanumurthy, director of the Madras School of Economics, estimated that 20-30% of urban households felt the impact of these escalating food costs.
Adding to the pressure, consumer goods companies have signalled more price hikes in the coming quarters for FMCG and durable products, as higher input costs continue to weigh on margins.
Regulatory action on unsecured loans
The Reserve Bank of India’s (RBI) measures to rein in unsecured lending by banks and non-banking financial institutions (NBFCs) in November 2023 have added to the strain on urban consumption.
Read this | Banks tighten underwriting, go slow on MFI loans as asset quality stress weighs
Many urban consumers rely on personal loans to finance purchases of durables, high-end electronics like mobile phones, and vehicles. With tighter curbs on such lending, some of these discretionary purchases have likely been deferred. Additionally, higher interest rates on loans have further dampened consumer appetite.
The RBI appears unlikely to relax these restrictions in the near term, given the sharp rise in retail lending. Nor is the central bank poised to lower interest rates, as inflationary pressures persist in the economy.
Also read | The festival season may boost consumption, but for how long?
Other factors, such as slower government spending on infrastructure during the first half of the financial year, have also restricted cash flows to consumers. However, Bhanumurthy, highlighted that improved goods and services tax (GST) collections in October signal a potential recovery in investment and consumption by both the government and households.