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Correspondent

23 August 2024 at 4:29:04 pm

Festive Surge

India’s bazaars have glittered this Diwali with the unmistakable glow of consumer confidence. The country’s festive sales crossed a staggering Rs. 6 lakh crore with goods alone accounting for Rs. 5.4 lakh crore and services contributing Rs. 65,000 crore. More remarkable still, the bulk of this spending flowed through India’s traditional markets rather than e-commerce platforms. After years of economic caution and digital dominance, Indians are once again shopping in person and buying local....

Festive Surge

India’s bazaars have glittered this Diwali with the unmistakable glow of consumer confidence. The country’s festive sales crossed a staggering Rs. 6 lakh crore with goods alone accounting for Rs. 5.4 lakh crore and services contributing Rs. 65,000 crore. More remarkable still, the bulk of this spending flowed through India’s traditional markets rather than e-commerce platforms. After years of economic caution and digital dominance, Indians are once again shopping in person and buying local. This reversal owes much to policy. The recent rationalisation of the Goods and Services Tax (GST) which trimmed rates across categories from garments to home furnishings, has given consumption a timely push. Finance Minister Nirmala Sitharaman’s September rate cuts, combined with income tax relief and easing interest rates, have strengthened household budgets just as inflation softened. The middle class, long squeezed between rising costs and stagnant wages, has found reason to spend again. Retailers report that shoppers filled their bags with everything from lab-grown diamonds and casual wear to consumer durables and décor, blurring the line between necessity and indulgence. The effect has been broad-based. According to Crisil Ratings, 40 organised apparel retailers, who together generate roughly a third of the sector’s revenue, could see growth of 13–14 percent this financial year, aided by a 200-basis-point bump from GST cuts alone. Small traders too have flourished. The Confederation of All India Traders (CAIT) estimates that 85 percent of total festive trade came from non-corporate and traditional markets, a robust comeback for brick-and-mortar retail that had been under siege from online rivals. This surge signals a subtle but significant cultural shift. The “Vocal for Local” and “Swadeshi Diwali” campaigns struck a patriotic chord, with consumers reportedly preferring Indian-made products to imported ones. Demand for Chinese goods fell sharply, while sales of Indian-manufactured products rose by a quarter over last year. For the first time in years, “buying Indian” has become both an act of economic participation and of national pride. The sectoral spread of this boom underlines its breadth. Groceries and fast-moving consumer goods accounted for 12 percent of the total, gold and jewellery 10 percent, and electronics 8 percent. Even traditionally modest categories like home furnishings, décor and confectionery recorded double-digit growth. In the smaller towns that anchor India’s consumption story, traders say stable prices and improved affordability kept registers ringing late into the festive weekend. Yet, much of this buoyancy rests on a fragile equilibrium. Inflation remains contained, and interest rates have been eased, but both could tighten again. Sustaining this spurt will require continued fiscal prudence and regulatory clarity, especially as digital commerce continues to expand its reach. Yet for now, the signs are auspicious. After years of subdued demand and inflationary unease, India’s shoppers appear to have rediscovered their appetite for consumption and their faith in domestic enterprise. The result is not only a record-breaking Diwali, but a reaffirmation of the local marketplace as the heartbeat of India’s economy.

India’s Budget and the Road Ahead

Updated: Jan 29

Part 1:

As coalition politics reshapes governance and global tensions mount, India’s economy balances cautious optimism with emerging challenges in the run-up to FY 2024-25.

India’s Budget

January brings a wave of positivity and hope for everyone as the new year ushers in fresh resolutions and optimistic plans for the future. Financial planning takes centre stage during this time, both at an individual and policy level. The Central Government prepares for the upcoming Budget session of Parliament, where the General Budget is discussed and adopted, setting the economic tone for the country.


The anticipation around the budget creates excitement and expectation, as people look forward to potential benefits and improvements in various sectors. Recently, Budget Day has generated significant buzz and glamour in the media corridors. Ironically, it’s said that there is an exponential rise in the number of economists in the country around this time, which subsides within a few days. One day before the General Budget, the government tables the Economic Survey, an equally critical document that doesn't receive as much attention. The Economic Survey provides an analysis of the previous year's economic performance, including in-depth analysis of various indicators and concludes with estimates and recommendations for the upcoming year. The General Budget outlines the government’s plans for the upcoming year, including financial allocations and policy measures, and estimates the revenue and expenses of the Government of India. Fundamentally, the Economic Survey serves as the basic guideline document on which the government formulates its plans in the General Budget. It is imperative to study both documents together to gain a holistic view of the Indian economy.


Before delving into the actual numbers, it is essential to set the context. The previous two financial years saw a recovery from the pandemic shocks, with very high growth rates. FY 23-24 witnessed a GDP growth of 8.2 percent, and hence, at the advent of FY 24-25, positive sentiments were at their peak. The first quarter, being an election quarter with the model code of conduct in force, saw no major policy actions by the Government. Much to everyone’s surprise, the BJP lost its majority in the results, but the NDA together garnered the majority numbers. After ten years, the country again witnessed a coalition Government, which at this stage seems stable and strong. However, coalition governments face their own limitations, and there is a risk of delays in implementing critical reforms. The government had to change gears, and the country saw some critical bills referred to the Joint Parliamentary Committee for consideration and recommendation. Against this backdrop, the RBI projected a quarter-on-quarter average growth rate of 7.2 percent, while the Economic Survey report estimated growth within a range of 6.5 percent to 7 percent.


As discussed earlier, government spending had certain limitations, focusing only on ongoing projects, which resulted in sluggish growth. The country witnessed a GDP growth rate of 6.7 percent during Q1 of FY 24-25. Compared to previous general election quarters, it was the highest rate since Q1 FY 04-05. However, Q2 FY 25 fell short of the RBI's expectations, with a growth rate of 5.4 percent, attributed to rising prices and a sluggish increase in government capital expenditure. Corporate results for Q2 were also lacklustre, creating negative sentiments in the capital markets. Rising inflation concerns prompted the RBI to maintain policy interest rates. The RBI did aggressive intervention in the currency markets which resulted into a steady Dollar exchange rate. It was evident that due to the protectionist policy of RBI the rupee has been overvalued. Recently, the RBI has stopped active intervention, and the Rupee has started depreciating. While Q3 numbers are still awaited, it is projected that Q3 will witness a bounce back in economic activity, mainly driven by the festive season.


Globally, tensions flared as the Israel-Hamas conflict escalated, with Israel launching attacks on Hezbollah in Lebanon and Iran directly confronting Israel. Despite the Middle East volatility, crude oil prices remained relatively stable, and the Russia-Ukraine war had minimal impact on India. Meanwhile, Donald Trump’s aggressive campaign for a return to power stirred global unease, promising a stronger ‘America First’ stance. Biden's tightened sanctions on Russia will disproportionately affect nations purchasing Russian crude. Combined with rising oil prices and a depreciating rupee, these factors are expected to strain India's economy in Q4, with inflation looming. The government's foreign policies, it seems, will be tested more than its economic strategies.


(The author is a Chartered Accountant and works at Authomotive Division of Mahindra and Mahindra Limited. Views personal.)

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