Anecdotal evidence of the consumer splurge in the festival season just gone by, seems to have made commentators and investors gung-ho about the India consumption story. Yes, India’s jewellery demand at 146 tonnes in July-September 2022, went past pre-pandemic levels as per the World Gold Council. Newly launched SUVs are reporting long waitlists. Hero MotoCorp clocked 20 per cent higher two-wheeler sales this festival season. Premium hotels are reporting high occupancies. MakeMyTrip reports that bookings for domestic leisure air travel are at over 100 per cent of pre-pandemic levels. Led by the strong appetite for vehicle, housing and consumer durable loans, bank retail credit grew by 19.6 per cent in September, the highest in many months. But slicing the data more granularly shows that consumption may be charting a K-shaped recovery, with well-off consumers able to afford revenge shopping helped by easy credit, while lower income folk are having to tighten their belts.

The following numbers tell the story. While newly launched SUVs are flying off showrooms, compact car sales are lagging. Overall two-wheeler sales at 84 lakh vehicles in April-September 2022, are well below 1 crore plus sold in the same period in FY19, suggesting that middle-class consumers have not regained their pre-Covid purchasing power. Titan’s strong jewellery numbers for Q2 were primarily driven by high-value buys for big-ticket weddings, but jewellery purchases in the sub-₹50,000/sub-₹1 lakh price points lacked traction. In FMCGs, where companies have been aggressive in passing on spiralling input costs to consumers, affordability has clearly been hit. Hindustan Unilever has clocked 0-6 per cent volume growth in the last few quarters even as price-led growth stood at 9-13 per cent. FMCG numbers also reveal a rural-urban divide in the spending revival. NielsenIQ data says that FMCGs saw shrinking volumes in the three quarters to June 2022, a period when CPI inflation was biting hard. The Private Final Consumption Expenditure component of the GDP, which was at ₹23.3 lakh crore in the third quarter of FY22 moderated to ₹22.6 lakh crore in January-March 2022 and further to ₹22 lakh crore in April-June. Eighty-five per cent of the respondents in RBI’s latest Consumer Confidence survey, 10 percentage points more than the January 2022 survey, noted a rise in their essential spending. All this reinforces the view that the post-pandemic recovery in incomes and employment has been patchy, with consumers in the hinterland and those in non-salaried employment left behind.

There are takeaways for policymakers from these trends. One, the government must not read much into the headlines and commentary from large listed firms tom-tomming a consumption revival. The safety nets in place for low-income folk such as PMGKAY and MGNREGA allocations need to be continued for now. Two, until there is evidence of improving farm incomes, the rural economy may need support in the form of food and fertiliser subsidies and PM Kisan payouts. Three, inflation is clearly hurting the common man and the Centre needs to persist with supply-side measures to keep it under check, at least in essentials. The trend of urban consumers heavily relying on credit to splurge also flags the need for RBI and banks to remain vigilant on a resurgence in retail NPAs.

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