‘Consumer spending may recover in Q2’

Consumer spending in India will grow at 9.1% in 2021 after contracting 9.3% in the previous year, with recovery expected in the second half (July-september) of 2021, Fitch Solutions said on Tuesday.

“We hold an optimistic outlook for the Indian consumer over 2021, with real growth in household spending forecast at 9.1% y-o-y. This marks the start of a recovery from the -9.3% y-o-y contraction in real household spending estimated over 2020. Despite the projected growth in 2021, we note that the real value of total household spending will remain below pre-covid-19 levels (2019), with real household spending forecast to reach a total of ₹73.3 lakh crore in 2021 compared to ₹74 lakh crore in 2019. This indicates that the recovery of the consumer and retail sector in India will spill over into 2022,” Fitch Solutions, an affiliate of Fitch Ratings said in its Consumer Outlook 2021 report.

The research firm said while new daily cases in the second wave of the pandemic are declining and authorities are looking to relax restrictions, it holds a cautious but optimistic outlook that consumer spending will start to build up in the second half of 2021. However, Fitch Solutions said a key risk to its outlook is a resurgence of community transmission, particularly if lockdowns are reintroduced nationwide and consumers delay purchases to reduce health risks, which will weigh heavily on consumer spending recovery in 2021.

In 2020, consumer confidence in India took a hit, falling to a five-year low of 49.9 (September 2020) and 97.9 (May 2020) for the current situation index (CSI) and future expectations index (FEI) respectively, according to surveys conducted

With the number of Covid cases receding and a measured re-opening underway, growth data has turned a corner and started to improve, according to Nomura. Spearheaded by mobility and power demand, the Nomura India Business Resumption Index (NIBRI) had bottomed in May, and has since registered two consecutive weeks of increase.

“This suggests that the month of May will experience the worst economic impact and June should be sequentially better,” said Sonal Varma and Aurodeep Nandi, economist, Nomura.

by the Reserve Bank of India(rbi). The poor consumer demand has impacted credit growth as people postponed their non-essential spending. In March 2021, India’s CSI declined slightly to 53.1, after displaying a promising upward trend between the five-year low in September 2020 to 55.5 in January 2021. Similarly, the FEI dipped from 117.1 in January 2021 to 108.8 in March 2021, indicating that consumers hold a gloomy outlook of the current and short-term economic situation, which will weigh heavily on consumer spending.

In 2021, households’ disposable income is projected to grow to ₹416,400 in nominal terms, surpassing pre-covid-19 levels of ₹408,800 in 2019, which will help support demand in the country.