Urban consumption buoyant, rises to three-month high in Sept

• Follow

While erratic rains failed to lift overall rural consumption in Q2 (July-September), urban consumption in India rose to a three-month high in September, helping the overall growth curve. Among the factors driving the consumption in the cities are softening price pressures, revival of Southwest monsoon performance and the beginning of the festive spurt, data released on November 27 confirmed.

“Urban consumption index rose to a 3-month high of 0.66 in September 2023 from 0.62 in August 2023, though still remaining below the recent peak of 0.70 as of May 2023,” according to the TRUC index developed by QuantEco Research, a firm engaged in research on the economy.

The indicators mentioned by the QuantEco Research report were robust sales of passenger vehicle sales, rise in air passenger traffic and a dip in retail inflation in the urban sector. Rural consumption posted a sharper improvement, with the index rising to 0.65 in September 2023 from 0.57 in August 2023, led by seasonal pick-up in tractor sales, pre-festive season led buoyancy in two-wheeler sales… also supported by correction in CPI rural inflation,” according to the index. The purpose of this track consumption index both in the urban and rural areas aim to fill a key data vacuum to help businesses with a better picture of the consumption pattern in the country. The consumption figures, in turn, help corporates to plan capacities, production and prepare with new investment, if necessary.

“Looking ahead, we remain more sanguine on rural consumption (ongoing Rabi sowing, 7% increase in wheat MSPs, gradual improvement in rural wages) vis-à-vis urban consumption (likely to feel the pinch of higher interest rates and RBI’s recent measures on uncollateralised retail lending) especially due to continuing fiscal support directed towards agri/rural sectors ahead of general elections next year,” the report stated.

The level of retail inflation slowed to a four-month low of 4.87% in October from 5.02% in September. The downward trajectory was aided by moderation of prices of some food items. The report hoped that with Diwali observed late this year, consumption would cheer the October numbers as well. According to an earlier report, while economists expected a GDP growth rate of 6.5% in Q2 (July-September), analysts are hopeful that the curve might move closer to 7%. This hope was also evident in the voice of RBI governor Shaktikanta Das, who recently said that the rate might be a pleasant surprise. Earlier, the central bank had forecast a 6.5% growth for Q2 of FY24. According to an earlier report, sales of domestic passenger vehicles and domestic passenger aviation traffic recorded growth rates of 21.5% and 23.1% respectively in the July-September quarter.