New Delhi
India’s consumer spending over 2024 demonstrates a positive outlook, offering stable growth as consumer confidence recovers beyond pre-covid levels, buoyed by recovery in the wider Indian economy and suggesting that consumer spending on big-ticket items will be more likely. However, sticky inflation and elevated unemployment stay as downside, as per
an outlook for India’s consumer sector by Fitch Solutions company, BMI.
Household spending in India will post strong growth over 2024, with real household spending growing 6.7 per cent y-o-y over the year, a slight uptick from the 6.5 per cent y-o-y growth estimated for 2023. This growth in consumer spending over 2024 will come as the wider Indian economy recovers and growth figures return to a more stable medium-term trajectory. This is supported by growing domestic demand as well as the expected recovery of wider international tourism. Although inflationary pressures have remained elevated across 2024, inflation is moderating and strong showings in real income growth for Indian consumers will give greater propensity for household spending growth, projects BMI.
In 2020, consumer confidence in India took a hit and fell to a five-year low of 49.9 (September 2020) for the current situation index (CSI) and 97.9 (May 2020) for future expectations index (FEI). Poor consumer demand has impacted credit growth, as consumers postponed their non-essential spending. While both these indices remain relatively weak, they have been on a recovering trajectory across 2023. Crucially, both indicators are above their 2019 levels for the first time since the pandemic, suggesting that consumer spending on big-ticket items will be more likely.
The BMI forecast for year-on-year growth in consumer spending in India in 2024 is in line with its forecast that the domestic economy will grow by a real rate of 6.7 per cent y-o-y, an improvement from the 6.3 per cent y-o-y in 2023. The market’s unemployment rate will be stable over the year, at 7.0 per cent of the labour force, while inflation is expected to remain elevated, reaching an average of 4.7 per cent over the year. Another indicator of robust consumer spending is the forecast of the Indian rupee’s appreciation against the US dollar to 81.0INR/USD in 2024, from 82.5INR/USD in 2023. For Indian consumers, this will provide further tailwinds to consumer spending growth as imports will become cheaper, offering a backdrop which will significantly mean that consumer spending over 2024 will remain stable.
On inflation in India, the report observes a moderation, reaching 4.9 per cent y-o-y in October, the lowest since May 2023, as prices for various consumer goods have eased. Official data shows that food inflation came in at 6.6 per cent y-o-y in the same month, easing from the 2-year high in July 2023 but still elevated compared to historical averages. The BMI Country Risk team forecasts inflation to ease albeit remaining elevated over 2024, averaging 4.7 per cent y-o-y and ending the year at 3.8 per cent y-o y. The report, however, flags a risk of inflation remaining elevated at these levels for longer than anticipated which will accelerate the erosion of household purchasing power.
The Indian unemployment rate will be 7.0 per cent of the labour force in 2024, unchanged from the 7.0 per cent average in 2023. As of September 2023, unemployment in India decreased to 7.1 per cent, the lowest rate of unemployment since January 2023. This rate of unemployment remains manageable in India and while inflation continues to increase, the main drivers are elevated food and housing costs as opposed to wages. However, the report warns that should economic conditions worsen in the market there is a risk of elevated unemployment, which will quickly feed through into a weaker consumer outlook.
As per BMI forecast, real household spending in India to expand by 29 per cent over the coming five years which will make India the third-largest consumer market in the world by 2027, up from its current position as the fifth-largest in 2023. In the same time period, India will see one of the highest household spending per capita growth 7.8 per cent y-o-y over other similarly fast-growing developing Asian economies such as Indonesia (5.8 per cent y-o-y), the Philippines (6.9 per cent y-o-y) and Thailand (6.9 per cent y-o-y).
Overall, the gap between total household spending across ASEAN and India will also almost triple, as we forecast India’s household spending to exceed USD3trn. The projected strong average real household spending growth rate of 6.5 per cent between 2023 and 2027 will be underpinned by the country’s large and youthful population, 33 per cent of which are between the ages of 20 and 33, high urbanisation rates that make consumers more accessible, and robust income growth. Moreover, the ongoing expansion of the consumer credit market will also enable greater debt-fuelled consumption.
India will see a continued expansion of its middle-to high-income households average annual disposable incomes of more than USD 10,000). In 2023, 39.6 million households or 13.6 per cent of total households had an annual disposable income of more than USD10,000, the threshold at which households are able to spend a greater amount on non-essential goods such as second-hand vehicles. We forecast this to grow by a compounded annual growth rate of 14.6 per cent out to 2027, whereby there will be 78.1 mn households, or 25.8 per cent of total households, that will have a disposable income of more than USD 10,000 a year by 2027. The majority of these households will be located in the economic centres, such as New Delhi, Mumbai and Bengaluru. The wealthier households are mainly located in urban areas, making it easy for retailers to target their key target markets. A key driver of the spend will be communications with around 33 per cent of India’s population, 493 million, estimated to be between 20 and 33 years old. Communications spending, in particular, will be supported by the country’s large young population. A consumer hotspot, we forecast communications spending to grow by an average of 11.1 per cent annually to INR 6.6 trn (USD76.2bn) by 2027, faster than essential (10.6 per cent) and at a similar rate as non-essential (11.1per cent) spending. Growth in this segment will be supported by a technology-literate, urban middle class with increasing amounts of disposable income that would encourage expenditure on aspirational products such as consumer electronics. The report also underlines recent activity in India’s retail sector which reflect investor confidence in positive impact of India’s urbanization rates on the country’s consumer market. For example, large global investors, such as Canada Pension Plan Investment Board, APG Asset Management NV, Virtuous Retail South Asia Pte. Ltd, and Blackstone Group are engaging in the shopping mall business to ride the wave of India’s urban consumption story.