Consumption boom set to boost Indian economy

Declining interest rates, a near-normal monsoon leading to higher rural incomes and pay hikes for central government employees are key triggers

Backed by healthy salary hikes, rising aspirations and easy credit, Indian consumers are spending more on new products - both online and offline. Consumer-oriented companies across sectors have seen robust sales growth in the past few months, making their chief executives smile again.

Data show Indian consumers are driving growth in the automobiles and airline sectors, apart from supporting mobile phones and consumer durables sales. Retail loans, too, are rising, and this boom is likely to support the broader economic growth in the current financial year, CEOs said. The recent festive discount offers by online reatilers have also reported robust sales.

Statistics tell the story of a surge in consumption. Passenger vehicle sales grew an impressive 17.8 per cent year-on-year, while two-wheelers posted 20-per cent plus growth in the quarter ended September of financial year 2016-17 (FY17). Airlines have reported a robust 23 per cent growth in passenger traffic between April and August this year on a 20 per cent y-o-y growth in calendar year 2016. Air traffic growth was 10 per cent in 2015. (THE NON-CONSUMER SIDE REMAINS A WORRY)

All these have made the corner offices of India Inc optimistic. "We are on the cusp of a huge breakout," said R C Bhargava, chairman of Maruti Suzuki, India's largest carmaker. "If we look at the jobs being created and salary increases of Indians, we are in for huge demand growth. China sells 22-23 million cars a year, while India sells around 3.3 million. As our economy picks up, we are looking at a surge in demand."

Banks and non-banking financial services (NBFCs) are seeing a major increase in retail loans, especially those for vehicles, consumer durables and credit card spends, which have surged between 18 per cent and 30 per cent in the past three months.

"The under-leveraged retail balance sheet, better information through credit bureaus, better credit experience and rise of new lenders such as NBFCs has led to lower rates, higher loan-to-value and, therefore, higher growth of retail books," said Ajay Srinivasan, chief executive, financial services, Aditya Birla Group.

Consumer surge has also been witnessed in consumer durables, new mobile phone connections and expensive handsets sales. Sales of consumer durables such as TVs, refrigerators, air-conditioners and washing machines are expected to grow 25-30 per cent, say chief executives of durable firms, as compared to a low double-digit growth observed last year.

Sales in restaurants and retail chains, which were subdued in the past, are also seeing an improvement as consumers begin to open their purses for discretionary products. According to Yum! Brands, its same store sales in KFC grew 13 per cent, while Pizza Hut was up six per cent in Q2 FY17. Analysts are expecting similar growth at Jubilant FoodWorks, Domino's Pizza franchise, and Westlife Development, which sells McDonalds.

Following a near-normal monsoon and expected rise in farm income, coupled with high pay-outs to government employees, consumption demand should only get a further boost.

Bhargava believes with consumer demand picking up, it's just a matter of time before the manufacturing sector picks up pace. "If we have to meet this rising demand, the manufacturing sector will have to eventually start production." (With inputs from Viveat Pinto, Arnab Dutta, Nupur Anand, Abhijit Lele and Aneesh Phadnis)