'Household spending may grow 6.7% in 2024 on mild inflation, income surge'

Supported by growing domestic demand, a low unemployment rate, moderating inflation and an expected recovery in international tourism, the real household spending in India is expected to grow by 6.7 per cent in 2024, up from 5.7 per cent estimated in 2023, according to a report released on Thursday by BMI Research, a unit of Fitch Solutions.

The report notes the growth in consumer spending in 2024 is expected to come as the wider Indian economy recovers and growth figures return to a more stable medium-term trajectory.

“The domestic economy will grow by a real rate of 6.7 per cent in 2024, an improvement from the 6.5 per cent in 2023. Although inflationary pressures have remained elevated, inflation is moderating and strong showings in real income growth for Indian consumers will give greater propensity for household spending growth,” it said.

The report also notes that the current situation index (CSI) and future expectations index (FEI) are above their pre-pandemic levels (at 89.4 and 118.0 respectively), suggesting that consumer spending on big-ticket items will be more likely as the economic and health situation in the market continue to stabilise. 

The household debt has been steadily decreasing (40.3 per cent in Q2 of 2023) from its acceleration during Covid-19 when households took on debt to support themselves.

“These levels are still relatively low and pose little threat to our consumer outlook for the market. We do note that increasing interest rates over the medium term (2024-2028) will increase debt servicing costs for households with debt, which are typically higher-income households in India. This means that households will increasingly have to allocate disposable income towards debt financing, placing downward pressure on their consumer spending going forward,” the report notes. 

The report also expects the Indian rupee to appreciate against the US currency, which for Indian consumers will provide further tailwinds to consumer spending growth as imports will become cheaper. 

“We believe this backdrop will significantly mean that consumer spending over 2024 will remain stable,” it says.

Besides, the Indian unemployment rate is expected to remain unchanged at 7 per cent of the labour force in 2024 from the 2023 levels.

“As of January 2024, unemployment in India decreased to 6.8 per cent, the lowest rate of unemployment since September 2022. This rate of unemployment remains manageable in India and while inflation continues to moderate, the main drivers are elevated food and housing costs as opposed to wages. However, we note that should economic conditions worsen in the market, there is a risk of elevated unemployment, which will quickly feed through into a weaker consumer outlook,” the report noted.

The report also notes that sticky price inflation, negative wealth effects due to weakening property prices, higher interest rates, global slowdown leading to an uptick in unemployment and geopolitical crises pose significant risks to the household spending outlook in India.