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India's economic momentum has experienced a significant slowdown just as the festive season approaches, leaving experts to ponder whether the annual shopping spree can revitalize the cooling economy. The nation had enjoyed a period of robust growth, but recent data reveals a more subdued picture. Manufacturing activity has declined, GST collections have lost their steam, and domestic car sales continue to slide. Despite these challenges, there is a glimmer of hope that the festive season's spending spree could offset the slowdown and spark a much-needed economic recovery.
The dip in economic activity became more apparent in September when GST collections rose by a modest 6.5%, significantly lower than the double-digit growth seen earlier in the fiscal year. Manufacturing mirrored this trend, with the Purchasing Managers’ Index (PMI) hitting an eight-month low of 56.5. This marked the third consecutive month of declining car sales, despite dealerships offering deep discounts. Even power consumption, often a good indicator of industrial activity, barely budged, increasing by only 0.6% from the previous year.
Pranjul Bhandari, Chief India Economist at HSBC, highlighted the significant weakening of the manufacturing sector's momentum after a strong summer. Core infrastructure industries also felt the chill, contracting by 1.8% in August, the first such decline in four years. Despite these challenges, economists remain optimistic, citing a favorable monsoon and the upcoming festival period as key drivers for a potential economic rebound.
Madan Sabnavis, Chief Economist at Bank of Baroda, told The Economic Times that rural demand is expected to pick up in the second half of the year, boosting overall consumption. He remains confident that India is still on track for more than 7% growth, with consumer goods showing particular strength. The India Meteorological Department reported 7.6% more rainfall than usual during the June-September monsoon season, which has been a boon for agriculture but may have dampened other sectors.
Aditi Nayar, Chief Economist at Icra, noted that the heavy rainfall could be behind September's lower GST collections. However, she remains hopeful, predicting that the festive season will drive higher volumes and stronger revenue collections. Sonal Badhan, Economist at Bank of Baroda, echoed these sentiments, noting that several international organisations, including Moody’s and S&P, have revised their India GDP forecasts upward, with Moody’s now expecting 7.2% growth for the current fiscal year.
The festive season is traditionally a time for indulgence, and this year is no different. Local Circles conducted a survey that revealed urban households are expected to spend around Rs 1.85 lakh crore during the 2024 festivities. There’s a strong interest in home decor, beauty, and fashion, and although e-commerce has grown, 70% of urban households still prefer in-store shopping. Luxury spending is also on the rise, with consumers ready to splurge on high-end brands and experiences. From vacations to premium products, this shift toward discretionary spending is a sign that consumer confidence is making a comeback.
The automotive sector is particularly hopeful for a turnaround. With Navaratri, Dussehra, and Diwali around the corner, automakers are banking on this festive period to reverse recent trends. Tata Motors and Maruti Suzuki are already seeing an uptick in bookings, and significant discounts, coupled with attractive financing options, are expected to drive demand. Even luxury car manufacturers are anticipating a strong season, as wealthy consumers look to treat themselves during the festivities.
The big question is whether the festive cheer can truly jumpstart the economy. Private consumption, which makes up nearly 60% of India’s GDP, is crucial for sustained growth, and the upcoming months will be telling. While recent figures show a slowdown, the festival season presents an opportunity for sectors like retail, automobiles, and consumer goods to bounce back.
If rural and urban consumers loosen their purse strings, this season of celebration could do more than just spread joy—it might also steer the economy toward a much-needed recovery.
Source: India's economy hits speed bump. Can festive spending jumpstart growth?