Strong domestic consumption demand cushioned India’s economic growth from global headwinds in the second quarter of 2022-23. Private final consumption expenditure (PFCE) grew year-on-year by 9.7 per cent and GDP by 6.3 per cent in real terms. Various stakeholders in the economy expect consumption demand to lead the economy on its growth path going forward.

The Reserve Bank of India’s (RBI) Monetary Policy Committee, yesterday, revised its real GDP growth projections for 2022-23 downwards to 6.9 per cent from 7 per cent earlier. Its concern, however, was the accentuated headwinds the economy is facing from protracted geopolitical tensions, tightening global financial conditions and slowing external demand. The MPC’s commentary on the domestic demand prospects was positive. It said, “The agricultural outlook has brightened, with the prospects of a good rabi harvest. The sustained rebound in contact-intensive sectors is supporting urban consumption.”

The Reserve Bank of India (RBI) governor Shaktikanta Das believes that urban consumption firmed up further in October 2022, driven by sustained recovery in discretionary spending, especially on services such as travel, tourism and hospitality. According to him, rural demand is recovering with rising farm activity which is reflected in the pace of tractor and retail two-wheeler sales.

Private forecasters are also bullish on the prospects of domestic consumption demand. Like the RBI, the 43 professional forecasters surveyed by it during November 15-30, 2022, also slashed their real GDP growth projection for the current and the next fiscal by 10 basis points. The median projection of real GDP growth now stands at 6.9 per cent for 2022-23 and at 6 per cent for 2023-24. On the contrary, the outlook on domestic demand improved. Forecasters now peg the real PFCE growth for 2022-23 at 9.4 per cent, which is 140 basis points higher than their median projection in September 2022. Real PFCE growth projection for 2023-24 has also increased by 20 basis points to 6.3 per cent. Notably, in both the years, PFCE is a driving factor for the real GDP growth.

Households seem to share the optimism of forecasters on domestic consumption demand. Results of the Consumer Confidence Survey conducted by the RBI during November 2-11, 2022 show that majority of the households in urban India expect their income and spending to improve one year from now. About 75 per cent of the respondents believed that their spending would increase one year ahead. The percentage of respondents who believed so, was slightly lower at 74.2 per cent in the last round of the survey conducted in September 2022. The proportion of respondents who expect to spend more a year ahead has been rising steadily since the beginning of the calendar year 2022. In January 2022, this proportion was 64.4 per cent. On the other hand, the proportion of respondents who believed that their spending would reduce a year ahead declined from 8.7 per cent in January 2022 to 5.2 per cent in September 2022 and further down to 4.7 per cent in November 2022.

The households that believe their spending on essentials will rise one year ahead are a lot more than those who expect to spend more on non-essentials. Nonetheless, the proportion of households hoping to spend more on non-essentials has increased steadily from 23.6 per cent in January 2022 to 32.8 per cent by November 2022. At the same time, the proportion of households who believe that their spending on non-essentials will decrease one year head has fallen from 37.8 per cent to 32.2 per cent. Now, a slightly larger number of households hope to spend more on non-essentials a year ahead than those who expect to spend less.

The RBI’s Consumer Confidence Survey findings are based on 6,089 responses collected from 19 cities.

CMIE’s Consumer Pyramids Household Survey (CPHS) which covers rural India as well also depicts an improvement in consumer sentiments. The CPHS has a much larger panel of 178,677 households picked from 328 towns and 3,965 villages. The consumer expectations index (ICE) build from the responses to this survey rose from 76.4 in September 2022 to 79.9 in October 2022. More importantly, the conclusion of festive season did not affect the consumer sentiments. In fact, the ICE advanced further to 80.5 in November 2022. The gains largely came from rural India. CMIE has already discussed this in detail in the article titled ‘Rural sentiments upbeat in November’ released on December 5, 2022.

FMCG companies that were complaining about elevated inflation hurting sales volumes in the September 2022 quarter, are now hopeful of demand picking up, particularly from rural demand.

Dabur India’s CEO Mohit Malhotra was quoted by Economic Times saying, “The impact of inflationary pressures was more pronounced in the rural markets with demand growth in hinterland lagging urban markets for the first time in five quarters. However, we are hopeful of rural demand reporting a smart recovery in the coming quarters.

Adani Wilamr MD Angshu Mallick also expected spending to go up from November and the rural demand to peak in the fourth quarter of the current year and first quarter of next year.

FMCG majors ITC, Marico and HUL are also optimistic of a pick-up in consumption expenditure in the second half of the year.

The lone segment of the stakeholders in Indian economy that seems to be cautious on the optimism related to domestic consumption demand are stock market investors. The Nifty FMCG index declined by 0.3 per cent in October 2022 when the broader market rose by 2.9 per cent. The Nifty FMCG index did rise by 2.8 per cent in November 2022, but the gains made by it were weaker than the broader market gains.