​Losing momentum: On slowing consumption demand

Several economic indicators released over the past week are bad news for the Finance Ministry and Reserve Bank of India’s hopes of a growth rebound in the second half of 2024-25 — at least for the October-December quarter. While GDP growth slipping to 5.4% in the second quarter was termed a transient blip, policymakers have acknowledged slowing consumption demand led by restrained spending trends in urban India. They have also exuded optimism about a festive boost from cities along with a resilient rural demand outlook lifting the momentum. The latest data points are also important as they are part of the final gauges for the Finance Ministry to assess before it finalises its economic blueprint for 2025-26 in the February 1 Union Budget. Bank credit growth has slowed for the fifth straight month in November, while core infrastructure sectors — about 40% of industrial output — expanded at a four-month high pace of 4.3%. However, production levels were 3.3% below October with six of eight sectors operating at lower capacities. The Purchasing Managers’ Index shows factory activity levels through November and December were the worst through 2024, even as input cost inflation spurred price hikes that would hit demand somewhat over time.

The Goods and Services Tax (GST) receipts for December, based on transactions concluded in November, do not have much succour to offer either, especially on the consumption engine of the economy. Gross revenues were at a three-month low of almost ₹1.77 lakh crore, and just 7.3% higher than last year, marking the joint-second slowest uptick in three and a half years. December’s revenues, in fact, mark the fourth straight month of below-10% growth, with the pace decelerating every passing month, and the year-to-date rise in revenues is now just 8.6%, making the 11% growth estimate in the Budget a tall task to catch up with in the final quarter. Net revenues after refunds were just 3.3%, the slowest this fiscal, although this may partly be explained by high refund payouts in December. Revenue growth from domestic transactions slowed to 8.4%, while import revenues grew just 3.9% — the former may perhaps be linked to tighter retail credit flows and a post-Deepavali spending pullback, but the latter is a tad puzzling as November’s goods import bill had shot up 27% to a record high of $70 billion. The poor revenue growth rates for major consumer States such as Uttar Pradesh (1%) and Gujarat (4%), and the persistent contraction in Andhra Pradesh and a few northeastern States (including Manipur), also need closer scrutiny. For the Budget’s formulation, the Centre would do well to try to understand and address the pain points afflicting consumption, including high inflation.