Moderation in urban demand amid softening consumer sentiment and limited footfalls due to above-normal rainfall need watching, a Finance Ministry report on Monday said, while simultaneously noting that rural demand has strengthened. It also said that the core inflation remains at very low levels, possibly reflecting the slowdown in demand growth in the first half of the current financial year.
In a separate report, global economic research firm Nomura corroborated the Finance Ministry finding saying that urban consumption indicators have been softening of late.
“There has been evidence of a slowdown in urban demand as reflected in the performance of various indicators during H1 (April-September) of Fiscal Year 2024-25,” the Monthly Economic Review (MER) prepared by the Economic Affairs Department said. It said that volume growth in urban FMCG sales has moderated to 2.8 per cent in April-June quarter (Q1) of the current fiscal as against from 10.1 per cent in the corresponding period of the last fiscal.
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PV sales slump
Similarly, FADA (Federation of Automobile Dealers Associations) reported a decline in auto sales by 2.3 per cent in April-September (H1 or Q1+Q2 of FY25), mainly due to the lower sales during July-September period (Q2) in the urban areas. House sales and launches also dipped in Q2 of FY25. “The above trends may be largely explained by softening consumer sentiments, limited footfall due to above-normal rainfall, and seasonal periods during which people tend to refrain from new purchases,” the MER said.
Nomura said passenger vehicle sales have slumped, airline passenger traffic growth has moderated and fast-moving consumer goods companies have flagged weak urban demand during their recent corporate results. “We believe this weakness in urban demand is likely to continue. Companies are scaling down their salary outlays,” it said.
When deflated by urban CPI, real salary and wage expenditure growth of listed non-financial corporates – a proxy for real urban wages – has moderated to 0.8 per cent in Q2 FY25 from 1.2 per cent in Q1 FY25, and is down from 2.5 per cent in FY24 and 10.8 per cent in FY23. “This likely reflects a mix of weaker nominal salary growth and a leaner workforce,” it said while highlighting that tight monetary policy along with check on personal loans also affected demand.
Rural Demand better
Meanwhile, the situation in rural area has improved with the MER underlining that above-normal monsoon has boosted kharif sowing, there has been an increase in minimum support price (MSP) for kharif crops and Government initiatives like increased allocation for Mahatma Gandhi National Rural Employment Guarantee Scheme has boosted demand in the rural areas.
According to Nielson, FMCG sales in rural area grew by 5.2 per cent in Q1 compared 4 per cent. FADA report found auto sales in rural areas rose by around 2 per cent in first half of current fiscal.
Overall growth
It maintained that the Indian economy will grow between 6.5 and 7 per cent in the current fiscal. “Risks stem from global factors such as geopolitical conflicts, rising geo-economic fragmentation, uncertainties about the trade policies of major economies and consequent financial market reactions,” it said.
However, Nomura views RBI’s forecast of 7.2 per cent for FY25 as overly optimistic. “We see rising downside risks to our own GDP growth projections of 6.7 per cent in FY25 and 6.8 per cent in FY26,” it said.