Household spending in India is likely to grow by a real rate of 7.9 per cent year-on-year in 2021, marking an improvement from the negative 14 per cent contraction in 2020, Fitch Solutions said on Thursday.
Despite unemployment remaining heightened at 8 per cent through 2021 and 2022, consumers' confidence is returning with people expecting an improvement in their general economic situation. This will aid the spending recovery story from H2 2021 onwards.
"We forecast household spending in India to return to growth in 2021 after the Covid-19 pandemic led to a contraction in consumer spending in 2020," said Fitch.
"While growth will return to positive in 2021, we do note the recovery will be slower than most countries as a result of the significant contraction over 2020." Consumer confidence took a hit over the past four quarters and was at the lowest in May 2020 due to economic slowdown. The poor consumer demand impacted credit growth as people postponed the non-essential spending.
In January 2021, India's future expectations index increased for four successive quarters and stood at 117.1, indicating that a recovery will be underway.
Fitch said the forecast for household spending over 2021 considers the economic impact of the Covid-19 pandemic on Indian consumer spending and government stimulus measures used to support the economy.
However, in nominal terms, total household spending will only be 3.3 per cent higher than what it was in 2019 (Rs 125.6 lakh crore in 2021 compared to Rs 121.6 lakh crore in 2019), highlighting the impact that the Covid-19 pandemic had on consumer spending.
Food and non-alcoholic drink spending were prioritised in household budgets in 2020, and so growth in spending on these items while remaining positive will be slightly lower than in 2020.
"We forecast food and non-alcoholic drinks spending to grow by 7.4 per cent year-on-year in 2021, from the 10.1 per cent growth we forecast for 2020." Spending within other consumer categories were estimated to record significant contractions over 2020 as households cut spending on non-essential items. "As such, these categories will grow from a relatively lower base over 2021 and thus will report stronger growth over the year," said Fitch.
The dynamics behind its forecast outlook assume that the economy will grow by a real rate of 9.5 per cent over 2021, an improvement from 7.9 per cent contraction estimated over 2020.