2013 Retail Outlook Report: Private consumption expenditure a well-entrenched trend

MUMBAI: The low growth of private final consumption expenditure (PFCE) is emerging as a possibly well-entrenched trend in India, as was expected by India Ratings & Research in its 2013 retail outlook report. PFCE grew only 2.2 per cent for the quarter ended September 2013 (2QFY14). As such, a 4.6 per cent jump in the agricultural component of GDP for 2QFY14 from 1.7 per cent in the second quarter fiscal 2013 would possibly have translated into a larger improvement in PFCE. However, the possible reason of this drag is the slowdown in urban spending.

While India Ratings expects rural spending to improve PFCE, a possible further slowdown in urban consumption may potentially limit the PFCE growth rate. The Consumer Confidence Survey (14th round) conducted by the Reserve Bank of India in September 2013 in six metropolitan cities across India suggests that the consumer confidence of urban consumers is deteriorating.

India’s possible moderation in urban spending may be attributed to the weak corporate performance translating into moderate nominal wage growth which often does not beat consumer price inflation. The estimated negative real wage growth affects the discretionary purchasing power of urban consumers.

The moderation in urban spending may be reflected in the performance of predominantly urban consumption dependent sectors such as quick service restaurants (QSR) and retail. Passenger vehicle (PV) sales also have substantial dependence on urban spending.