The Financial Express
The disappointing sales of cars and bikes during the Navratri season—down by 15-20% by some estimates—suggest lethargy in consumer demand. Indeed, the Maruti Suzuki chairman RC Bhargava’s comment after the company’s Q2FY19 results, to the effect it doesn’t feel at all like the festival season, is worrying. Just ahead of that, RBI’s consumer confidence survey for September showed urban consumers’ perceptions about the current economy had worsened with households very pessimistic about employment; the reading was very poor and close to all-time lows.
It is not just cars or bikes, spending in general is somewhat subdued as reflected in corporate results and the slower increase in prices of homes which, at an all-India level, moderated to 5.3% in the June quarter, from 6.7% in the March quarter. To be sure, private final consumption expenditure (PFCE) grew at a poor sub-7% growth in 2017-18, and while it picked up to grow at 8.6% in Q1FY19, that came off a favourable base. While urban demand has been somewhat uneven over the past year, rural demand has been holding up. But Nomura’s heat-map of high-frequency data is showing early signs of a demand slowdown, led by rural and urban consumption demand. That is worrying and could have to do with the slower rise in wages.
The traditional bellwethers of rural consumption—two-wheeler and tractor sales—economists say have moderated to around 5% y-o-y in the September quarter from 16-25% in Q1FY19. To be sure, tractor sales have been booming, so some deceleration is not really surprising. However, unless farm incomes bounce back on the back of a not-so-good harvest, combined with better support prices announced by the government, demand could flag further. Already, tighter liquidity and rising interest rates are hurting consumption and threaten to slow down the economy.
Government spending in the next few months could be constrained by lack of funds and the need to exercise fiscal restraint; indirect tax collections for H1FY19 are way behind the target and the estimated shortfall in revenue receipts could be around `55,000 crore. Government spending showed a slow 7.6% y-o-y growth in Q1FY19, albeit on a high base but it has been inconsistent, growing at just 3.8% in Q2FY18 and 6.8% in Q3FY18.
Given how the private sector is spending very little on capex and the government, too, may need to rein in spends, the economy is clearly headed for a slowdown. Had demand been more buoyant, one would have seen bigger investments by the private sector but there is no sign of that yet. Unless spending picks up sharply, GDP growth would have peaked at 8.2% in Q1FY19 and will decelerate sharply.
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