No crackers, easy on the festival lights

It's that time of the year again. Festival consumption is projected to post sobering growth over an unusually long lunar calendar of celebration. There is early indication of caution from Amazon and Flipkart, which are running their festival discount weeks. Quick commerce is reporting a surge in business, but that has more to do with consumers pivoting towards instant delivery of small-ticket items. The big push usually delivered by consumer electronics is not all there as manufacturers of smartphones and TVs have marked up prices in the run-up to the festival season. India's economic momentum, although strong, will slow down as the West Asia energy shock works its way through the system. Festival consumption must also contend with last year's high base due to GST rate rationalisation.

The season will post respectable numbers because of price movement rather than volume. Main categories of festival consumption - electronics, FMCG and jewellery - are all facing severe input cost pressure, and producers are relying on their pricing power to hold up their top lines. Semiconductor shortage, higher commodity prices and a strengthening dollar may not have made enough of a dent in consumption yet, but these pressures will linger. Consumers have become selective, trading down in ticket size and brands, which will affect companies' ability to pass on higher input prices. Profit margins could come under pressure during this festival season.

Credit costs have started moving up during the season. That pulls away some of the ballast to consumption. Consumer credit has surged as young buyers borrow to spend. This represents weakness in terms of sustaining consumption growth. High incidence of retail lending alters the risk landscape of the financial system. Retail credit is flowing towards small-ticket sales in semi-urban areas, which has a bearing on household debt tolerance as inflation rises to the top of the officially acceptable band. It may be a good idea to spend a little less on Diwali lights this year. And no crackers, please.