Consumers have proved to be messiahs for the Indian economy in the last three years, propping up demand for goods and services with their spending, even as the investment leg of the economy has stalled. But high-frequency indicators in the last five months indicate that private consumption expenditure is losing steam. Passenger vehicle sales have registered contraction for the five successive months to March 2019. Two-wheeler sales have been in negative territory for four months. The consumer durables leg of the Index of Industrial Production has grown by less than 2 per cent in the months since November 2018. Air passenger traffic, which was booming, at 20 per cent plus growth rates until September 2018, has lost momentum to register barely any growth in March. A BusinessLine analysis of India Inc’s early bird results for fourth quarter of FY19 brings further evidence of a demand slowdown that is now threatening profit recovery for listed companies. FMCG giants such as Hindustan Unilever have commented on slowing rural as well as urban consumption, that has led to a marked slowdown in volume growth.

It is true that part of the consumption slowdown telegraphed by these high-frequency indicators is the result of one-off factors. For instance, regulatory disruption from the upcoming transition to BS VI norms on top of a spike in insurance costs, has curtailed passenger vehicle production and sales in recent months. Air travel has been hit by Jet Airways’ financial woes, which has taken substantial capacity off air and sent airfares soaring. But there are more serious factors underlying the consumption slowdown too. The structural collapse in agricultural crop prices which has dented rural incomes is already well-documented. But the consumption cutbacks on durables and consumer staples in recent months suggest that the Indian middle class is not in an upbeat mood either. For middle-income earners, the prop from the Seventh Pay Commission that had delivered a boost to incomes in FY17 and FY18, has materially waned. The muted nominal GDP growth of the last three years, thanks to low inflation, has curtailed corporate top-line growth and muted private sector wage increases too. In the last six months, the NBFC liquidity crisis has worsened the business environment and put a spoke in the wheels of consumer financing, a big driver for big-ticket consumer purchases.

Overall, with consumption weakening, the next Central government will have its task cut out to sustain 7-7.5 per cent GDP growth. Yet, the economic agendas of both the national parties ignore the spending slowdown and take nominal income growth and middle-class prosperity for granted, while they ready income support schemes such as PM KISAN and NYAY for the poor. Without a revival in consumption expenditure and nominal GDP growth, finding the fiscal headroom for such transfers in India’s resource-constrained budget will prove a pipe-dream.

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