New Delhi [India], October 14 : India's consumer spending is likely to see more moderate growth in the second half of the current fiscal year despite resilient demand so far, as the impact of earlier tax cuts fades from comparisons and rising food and fuel costs threaten household budgets, ICRA Chief Economist Aditi Nayar said.
Speaking to ANI, Nayar said income tax rationalisation and GST rationalisation had supported consumption over the past year and a half. However, the strong growth following GST changes is likely to make comparisons tougher in the coming months.
“We do expect that there is going to be a moderation in volume growth across a lot of sectors,” she said.
Nayar said consumer growth had remained resilient, with high-frequency indicators staying strong despite the West Asia crisis. However, consumer sentiment indices published by the Reserve Bank of India for both rural and urban areas had been pointing downwards throughout the calendar year.
“Despite that, so far the high frequencies have held up, but we do think that there is going to be a more moderated kind of volume growth going ahead,” she said.
Food inflation and crude oil prices will be key factors determining the outlook for household spending. Nayar said a further rise in food prices following a weak monsoon could affect household budgets, disposable income, inflation expectations and consumer sentiment.
“Things like food, the percolation of food price pressures to the inflationary expectations and consumer demand is very, very quick,” she said.
She added that persistently high commodity prices could force more producers to pass on higher costs to consumers, putting further pressure on demand.
The other major risk is a sustained increase in crude oil prices that leads to meaningful hikes in retail petrol and diesel prices.
“If that is the case, then definitely I think consumer sentiment will take a greater hit. Otherwise, we are hoping that the resilience that we have seen so far can continue,” Nayar said.
On the broader economic outlook, ICRA expects India's GDP to grow by 7.1 per cent in the current fiscal year. In an adverse scenario where crude oil prices do not correct, growth could be around 6.8 per cent, she said.
Nayar also expects at least one more rate hike by the RBI's Monetary Policy Committee in December, adding that bond yields are likely to remain elevated amid inflation risks, higher global yields and elevated crude oil prices.
Higher bond yields could shift corporate borrowing towards banks, which currently have surplus liquidity, rather than the bond market over the next couple of quarters. She said elevated yields were unlikely to derail capacity expansion plans already underway, although a broader recovery in private investment may take longer.
Private investment remains concentrated in renewable energy, data centres, electric vehicles, cement, steel, hotels, aviation and hospitals, while investment remains limited in export-oriented sectors and those facing strong competition from Chinese imports.
Nayar further said recent RBI measures to support the rupee were in the right direction. A sustained decline in crude oil prices to USD 90–95 per barrel could also ease pressure on the currency, although uncertainty and foreign institutional investor flows remain factors to watch.