According to Deloitte research, India is witnessing distinct and broad-based shifts in the consumption patterns.
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Deloitte’s India Economic Outlook for August 2024 predicts strong economic growth between 7.0% and 7.2% in FY25, driven by robust economic fundamentals, surpassing the Economic Survey’s prediction, but aligning with the Reserve Bank of India’s outlook.
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According to the outlook, despite modest private consumption due to various factors, there is a noticeable shift towards non-food and discretionary spending. Rural spending preferences offer significant growth opportunities for businesses.
“Following a period of uncertainty in the first six months of the year, we believe India will witness robust growth in the second half. Key contributing factors include the continuity in domestic policy reforms, reduced uncertainties in the U.S. post-elections, and more synchronous global growth within a low inflation regime. Additionally, improved global liquidity conditions, as central banks in the West ease their monetary policy stance, will enhance capital flows and drive higher investments, particularly in the private sector,” said Dr. Rumki Majumdar, Economist, Deloitte India.
Government initiatives in the Union Budget 2024-25 were expected to boost agriculture productivity, create jobs, and improve MSMEs’ access to finance, thereby enhancing consumer spending and addressing urban-rural spending gaps.
Despite strong growth, private consumption spending has remained modest over the past five years. The pandemic, high global and domestic inflation, consequent tightening of financial conditions, and the effects of poor agriculture output on rural demand seem to have capped private consumption growth in India. But amidst all this, there is a silver lining.
According to Deloitte research, India is witnessing distinct and broad-based shifts in the consumption patterns.
Rural spending preferences have immense potential to create demand for discretionary goods and services, especially for durable goods and conveyance. Narrowing the urban and rural spending gap offers penetration-led volume growth opportunities for businesses to focus on volume, achieve economies of scale, and create opportunities through innovative products and services.
According to Deloitte research, if increasing income in States results in a relatively equitable distribution and higher rural spending, businesses can tap into a larger proportion of the State’s population that resides in rural areas. This gives businesses access to a large consumer base and a sustainable consumer spending demand, as compared to States with a widening gap.
According to the Deloitte study, ‘’The good news is that several Indian States have improved the urban-rural spending gap along with the rising income. These States hold the promise of a large consumer base in rural areas, where preferences and consumption behaviours are shifting towards non-food spending categories.”
Union Budget 2024-25 focuses on improving agriculture productivity, job creation, manufacturing, and MSME financing, is expected to boost consumer spending and reduce urban-rural spending disparities. Increased spending on discretionary goods, processed food, and conveyance, with urbanisation and higher workforce participation will drive these changes.
Household spending on education and health remains low, but States like Kerala and Punjab show relatively higher health expenditure impacting discretionary spending.
