CONSUMPTION BOOM

Emboldened by easing inflation, steady rates, and fatter wallets, India's retail juggernaut roars on, supercharging the consumption narrative

In the realm of economics, consumption often serves as an effective barometer of an economy’s health. This principle holds especially true for India, where a rapidly growing population and favourable demographics create immense potential for a strong consumption-driven growth story. After the 2023 market peak, questions loom about whether this consumption theme will hold its shine.

To grasp the enduring relevance of India’s consumption story, we must elucidate it from two viewpoints: the brightening macroeconomic landscape and the diverse demand patterns across rural and urban areas.

This multi-faceted view will paint a clear and complete picture, revealing whether the consumption surge retains its vibrancy or harbours hidden vulnerabilities.

IMPROVING MACRO-ECONOMIC SITUATION

Several powerful forces bolster India’s consumption story.

• Consumer Price Inflation

Several estimates predict a promising decline in India’s Consumer Price Inflation (CPI) from 5.6% in FY24 to 4.5% in FY25. This anticipated dip promises to be a significant sentiment booster for the country’s consumption story.

Falling inflation not only bolsters disposable income by reducing pressure on household budgets, but also encourages companies to pass on cost savings to consumers, stimulating demand for goods and services.

Historically, the correlation between lower inflation and increased spending has been well-established. As per Ind-Ra, a subsidiary of Fitch Ratings, a one percentage point reduction in inflation translates to a 64 basis point increase in GDP or a 1.12 percentage point boost to PFCE (private final consumption expenditure) growth.