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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.

Reading the Economic Tea Leaves

Updated: Jan 31

Part 3:

A mixed bag of high-frequency indicators suggests India's economic recovery is uneven, but not without promise.


Nirmala Sitharaman

As Finance Minister Nirmala Sitharaman prepares to unveil the Union Budget on February 1, 2025, policymakers are poring over a complex set of economic signals. Gross Domestic Product figures, while crucial, arrive with a time lag, making High-Frequency Indicators (HFIs) the go-to barometers for assessing India’s economic pulse in real time. The Reserve Bank of India (RBI), the maestro of macroeconomics, pieces together these fragmented signals from agriculture, industry, and services, painting a portrait of where the country stands.


On the surface, the agricultural sector is basking in a monsoonal afterglow. Water reservoir levels surged to 139.4 billion cubic meters by mid-December, a striking 24 percent increase over last year, setting the stage for a robust second half of FY25. Kharif food grain production hit 164.7 million tonnes—an 11 percent jump—while Rabi sowing inched up by 1.6 percent. Tractor sales, a reliable barometer of rural confidence, climbed to 690,000 units between April and November, signalling resilience. The government’s decision to hike the Minimum Support Price (MSP) by 5 to 12.7 percent across crops has bolstered rural purchasing power, hinting at a GDP boost ahead. Inflationary fears linger, but for now, agriculture appears to be on steady ground.


Passenger vehicle sales, a key indicator of urban demand, experienced a dip in the second quarter but saw a strong recovery during the Diwali season in the third quarter. Domestic air traffic, while still positive, grew by a modest 6.8 percent from April to October, a marked slowdown from the 19.3 percent growth in the same period the previous year. Fuel consumption rose by 3.3 percent from April to November, compared to a 5 percent increase in the prior year. Similarly, power consumption saw a more subdued growth of 3.9 percent, reaching 1,149.5 billion units, down from 9.7 percent the year before. Meanwhile, the agriculture sector’s buoyant performance has buoyed rural demand, cushioning the effects of a tepid urban market.


Unemployment remains a political flashpoint, often wielded by opposition parties to take aim at the government. The latest Periodic Labour Force Survey pegs urban unemployment at 6.4 percent—an improvement, but one that masks a stark gender disparity. While male unemployment stands at 5.7 percent, female unemployment hovers at 8.3 percent. Encouragingly, new Employees’ Provident Fund enrolments crossed 10.5 million between April and October, up from 8.2 million the previous year, and demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act fell by 13.3 percent, suggesting that more rural jobs are emerging outside the safety net.


Then, there’s inflation, a spectre that looms over every economic conversation. The Consumer Price Index (CPI) softened to 4.9 percent between April and November, compared to 5.2 percent the previous year. Core inflation, stripped of volatile food and fuel prices, has cooled to 3.2 percent. But food inflation, the metric that weighs most heavily on household budgets, has risen to 7.9 percent, up from 6.6 percent last year. The Wholesale Price Index (WPI) has rebounded from a 1.3 percent contraction to a 2 percent increase, reflecting an economy where supply-chain pressures are shifting.


Global forces complicate the RBI’s calculus. With the rupee showing signs of depreciation and the Federal Reserve’s rate trajectory uncertain, India’s central bank has opted for patience, keeping policy rates untouched. A Trumpian return to protectionism in the U.S. could disrupt trade flows, while the fragile Israel-Hamas ceasefire may determine the next moves in global energy markets.


One missing piece in this puzzle is private investment, which remains sluggish despite government spending driving infrastructure expansion. India’s industrialists, historically cautious in uncertain times, have held back on large-scale capital expenditures, wary of volatile global conditions and policy risks. While the production-linked incentive (PLI) schemes have seen some success, they have not yet triggered a full-scale private investment boom. The government will be under pressure to balance fiscal prudence with populist spending.


In the months ahead, India’s economic story will be a balancing act between rural optimism and urban sluggishness, between inflationary caution and growth imperatives, between domestic policy and global volatility. The tea leaves are there for the reading; the real question is who gets to write the script.


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

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