The big Retail Rush: What is driving the consumption binge in India?

Data points for India and the world can’t be more divergent. While the world seems to be convulsing on the dread of triple R, India seems to be rejoicing on the rhythm of double R.  Triple R of Recession, Rate hikes and Reduction in central bank balance sheets dominate the narrative for the developed world whereas here in India, the double R of Retail Rush is reveling the retailers. Diwali seems to have set in early for consumer demand.

Retail business, PV sales, credit card spends and retail credit have seen a huge spurt in July after months of muted show. Both the RBI’s consumer confidence index and the CMIE’s consumer sentiments index (Center for Monitoring Indian Economy) have shown a significant spurt in July. More importantly, what is significant is that both these indices reflect the assessment on the future conditions of demand, besides the current one. This means the consumer confidence in India is likely to sustain in a durable manner, provided there are no further shocks from the global macro.

What is fascinating is the level of growth in July in the consumer retail vis-à-vis the pre-pandemic level in 2019 (not YOY from 2021). In most of categories, the growth numbers are gyrating at high double digits as listed below.  
23% in footwear
22% in apparel and clothing
32% in sports goods
23% in furniture & furnishing and 17% in QSR
17% in Consumer Durables & Electronics and 15% in jewelry

While opening up of contact-intensive services sectors and improved rural prospects on good monsoon etc. could be cited as some of the reasons for the rise in consumer sentiment, it doesn’t fully explain the extent of jump one is witnessing in various categories, esp. with respect to pre-pandemic levels. Looks like, there is more to it than what meets the eye. The reason being, the pandemic pent-up has been playing out for a while since March and hence can’t fully explain the surge in July, esp. when the global macro and inflation/interest rate scenario is much less favorable now compared to few months back.

So the key question to ask is, what is driving this consumption binge? If it is beyond the pandemic pent-up, what is it? In our view, it may be impossible to pinpoint to any one single factor that could be causing this upsurge. It could be because of a confluence of factors coming together in a coincidental manner to conspire this huge consumption surge. What could be these factors?

Here are some of the major ones…

  • With the clean-up of balance sheets and NPA cycle behind, banks and NBFCs are more than willing to lend, fueling credit growth (for e.g. latest data shows that a 77% jump in loans for consumer durables).
  • Cumulative pent-up (rather cumulative base effect) from accumulated demand because of slower growth over last six to seven years on account of teething troubles over reform measures such as GST, RERA etc. With these measures stabilizing, they are now acting as catalysts for renewed growth.
  • Opening up of contact-intensive service sectors and surge in disposable income among employees in technology and other services segments etc. have added, not in small measures to the consumer boost.
  • Improved confidence on India’s medium to long-term growth outlook on favorable geo-political settings (China+1 in particular), massive super-digitization cycle, progressive policy environment etc.

In summary, if one goes by above confluence, it looks like the surge we are witnessing in consumer demand is likely to sustain and could turn out to be a durable one. Further, there are early signs that the stress in the rural economy is easing as reflected in the fall in the demand for work under MNREGS in July (Mahatma Gandhi Rural Employment Guarantee Scheme). For the month of July, work demanded under this scheme fell to nearly half as compared to the prior month. This coupled with the improving prospects on the jobs front (due to an uptick in agricultural activity and a better monsoon which led to a 6-month drop in the unemployment rate in July), there is increasing confidence and comfort for a durable surge in consumer demand. Hope the Retail Rush becomes a double R block-buster for India in real terms like the theatre flick RRR in reel terms. Only time will tell. Interesting times!


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