CONSUMPTION TO PLAY ROLE IN GROWTH

India will see a bigger role for consumptionled growth in FY16/ 17 with the implementation of a portion of the Seventh Pay Commission proposals and a good monsoon which could increase rural spending. These twin factors could boost growth to 7.8 per cent in FY 16/ 17 from the 7.6 per cent in FY15- 16 according to DBS Research group.

With the private sector still de- leveraging their loans, limited room for public capital expenditure spending, and exports under pressure for the sixteenth month, the onus will fall squarely on domestic consumption to boost growth.

The risks of inflation due to higher consumption has been moderated by low commodity prices, good spatial/ temporal spread of the ongoing monsoon and partial implementation of the pay commission awards ( particularly excluding a hike in housing rent allowance).

Overall household debt is less than 10 per cent of GDP, signalling room for further growth here.

Helped by these domestic tailwinds, India’s growth is relatively shielded from external risk events, particularly Brexit aftershocks and a slowing China.

Consumption has been positive so far this year: Passenger car sales rose 8 per cent in Apr- May16, up from 7 per cent last year and 4 per cent the year before.

Two- wheeler sales too are off to a strong start this year. The growth in consumer spending is further evident in the demand for retail loans that was the only segment that rose in the past two years, while the industry and service sectors hit road bumps.