Economic Survey 2023-24: Consumer durables inflation eased in FY24

In FY22 and FY23, clothing was a major driver of inflation

Consumer durables inflation increased progressively from 2019-20 to 2022-23 (FY23) by more than 5 percentage points. However, the Economic Survey noted that with improvements in the supply of key raw materials, the inflation rate for consumer durables declined in 2023-24 (FY24).

The Survey also pointed out that in 2021-22 (FY22) and FY23, clothing, which accounts for 48 per cent of the weighting in the consumer durables index, was a major driver of inflation. This was largely due to a surge in the prices of key input materials used by apparel manufacturers, particularly cotton.

“FY22 was when cotton prices surged, causing raw material prices to rise. While market prices increased, it’s important to balance this with the fact that 50-60 per cent of sales today occur during discount periods. As a result, the net realisation for apparel companies has remained relatively stable,” Rahul Mehta, the chief mentor at the Clothing Manufacturers Association told Business Standard.

 

He added that the market remains sluggish, and the industry is going through a major slowdown. “I do not see any chance of prices going up,” he said.

The consumer durables industry faced challenges from Covid-19, which led to increased component prices. Additionally, the Ukraine-Russia crisis disrupted supply chains and caused container prices to spike, pushing up the prices of consumer durables.

However, in the past year, component prices have remained stable. “The movement of component prices varies across segments,” said Atul Lall, managing director at Dixon Technologies (India).

He observed a slight increase in component prices for lighting and open cells used in television panels, both of which had decreased last year. Container prices, which had been rising, have now started to stabilise, Lall added.

Avneet Singh Marwah, CEO at Super Plastronics said that there has been a global slowdown for consumer durables which has caused component prices to remain under pressure through FY24. 

"Prices of components have remained flattish at the moment, but if demand revives globally, then there could be an increase in raw material prices," Marwah said.   

Regarding consumer demand, the Survey said, “A normal rainfall forecast by the India Meteorological Department and the satisfactory spread of the southwest monsoon thus far are likely to improve agricultural sector performance and support the revival of rural demand.”

Rural demand, which has been under pressure for over a year, began to show some respite in the January-March quarter of FY24.

The Survey also noted that private consumption reported a gradual pick-up in rural consumption growth during the quarter ending March 2024.

NielsenIQ’s release for the January-March quarter indicated that the growth of the fast-moving consumer goods industry is driven by consumption trends, with rural areas surpassing urban growth for the first time in five quarters.

“I’m hoping that with a better monsoon and continued favourable macroeconomic conditions, recovery will continue in the next quarter or two,” said Ritesh Tiwari, chief financial officer at Hindustan Unilever, following the announcement of the January-March results.

The company noted that while rural growth has not yet surpassed urban growth, it is higher than urban growth in the January-March quarter.