The Consumption Boom

This time last year, most of the consumer-facing companies you talked to had many tales of gloom and doom. While rural demand had crashed after two successive years of bad rains, even the urban demand was tepid at best. The Consumer Price Index had started climbing steadily even as the Wholesale Price Index was in negative territory. Developers had put malls on hold. Most of the organised physical retailers showed little growth, though online sales were booming, perhaps because of the discounts they gave. Companies in most sectors talked about a flat retail demand for their products.

One year later, things have changed quite dramatically for the better. The automobile sector is experiencing its best year in half a decade - and its sales started climbing several months before the festival season began. The fashion and apparel sector is also booming with both online players and physical retailers talking of better volumes and higher priced sales. Meanwhile, electronic and consumer durable players are also seeing their products flying off the shelves. Television retailers say that people are uptrading - that is, buying bigger, more expensive models. Banks report higher personal and other retail loans. Meanwhile, after a good monsoon, retail inflation seems to be coming down. (Though WPI has started climbing.)

So far, the consumption boom seems to be restricted to the big urban centres, though even many Tier-II cities have reported increased buying interest. In rural areas, while there is hope that a good harvest will lead to better incomes, demand for most products is still tepid. But analysts expect the rural demand to pick up in a few months' time.

All this is music for the ears of the government. The government spending on infrastructure projects was expected to be the main driver of GDP growth in the absence of private sector investments into new projects. But the consumption boom is also expected to be an equally big driver of economic growth this year. The higher consumption is resulting in better capacity utilisation in a host of sectors. And that gives hope that private investment into fresh capacity creation will follow.

The government did its bit to nudge consumption into higher gear. The implementation of the Seventh Pay Commission recommendations has resulted in more cash in the hands of four million government servants, and even government retirees. As they have received arrears (the Seventh Pay Commission compensation is applicable from January 2016), it gives a good incentive for them to splurge.

Of course, not every sector has seen equal rise in consumer spending. By and large, the fast-moving consumer goods (FMCG) companies have not seen any large spurt in the spending of their consumers. Similarly, the real estate market remains in the doldrums. But those are the exceptions.

Our cover story on consumption is a true team effort. While Senior Editor Ajita Shashidhar anchored the project, reporters in Delhi, Mumbai, Bangalore, and Hyderabad chipped in with additional reporting. Our research team also worked overtime to find and compile consumption data.