Middle-class strain on consumption

In recent weeks, a slowdown in private consumption has dominated headlines.

- JANAK RAJ, AASHI GUPTA & SUBHANSHI NEGI

At a time when concrete signs of a revival in private capex cycle are yet to emerge, this is worrying. However, it is important to understand the factors underpinning the consumption slowdown for its proper diagnosis.

In Q2 of 2024-25, the sales growth of top 10 fast-moving consumer goods (FMCG) companies by market capitalisation slowed to 4.3 per cent from 6.1 per cent in the previous quarter, raising serious concerns about weakening urban consumption. This was later confirmed by a slowdown in private final consumption expenditure (PFCE), which grew by 6 per cent in Q2 of 2024-25, compared to 7.4 per cent in the previous quarter.

The slowdown in private consumption has been underway for some time now. It started eight quarters ago in Q3 of 2022-23 when year-on-year (y-o-y) growth in PFCE dropped to 1.8 per cent. The average PFCE growth moderated to 4.1 per cent over the eight quarters from Q3 of 2022-23 to Q2 of 2024-25, a sharp decline from the robust average growth of 10.5 per cent in the preceding eight quarters (Q3 of 2020-21 to Q2 of 2022-23), and the pre-pandemic average growth rate of 6.7 per cent (Q1 of 2012-13 to Q4 of 2019-20). A combination of factors contributed simultaneously to this slowdown in private consumption.