Can Festive Spending Jumpstart India's Slowing Economy? | Economic Outlook 2024

India's Economy Faces a Slowdown: Can Festive Spending Revive Growth?

With the festive season in full swing, many are asking whether consumer spending can reignite India’s economic momentum. Here’s what experts have to say.

Key Takeaways:

Festive season spending could help revive India's slowing economy.

Economists predict a boost in rural demand during the festivities.

Automakers are optimistic that the festive cheer will drive a sales recovery.

India’s economic growth has hit a speed bump just as the festive season approaches, raising hopes that this annual shopping spree could breathe new life into the slowing economy.

After months of steady progress, recent data shows a more sluggish performance. Manufacturing activity has declined, GST collections have softened, and domestic car sales continue to fall.

However, there’s optimism that festive spending will offset this downturn and spark a recovery. In September, GST collections grew by just 6.5%, well below the double-digit growth seen earlier in the fiscal year. Manufacturing also saw a slowdown, with the Purchasing Managers’ Index (PMI) falling to an eight-month low of 56.5.

Car sales have now dropped for three consecutive months, despite dealerships offering substantial discounts. Even power consumption, a reliable indicator of industrial activity, barely increased, rising just 0.6% compared to last year.

Pranjul Bhandari, Chief India Economist at HSBC, pointed out that the manufacturing sector’s momentum has faded since a strong summer. Core infrastructure industries, too, experienced a decline, contracting by 1.8% in August—the first decline in four years.

Festive Cheer Could Bring a Turnaround

Despite these challenges, many experts believe the slowdown could be temporary. Economists are hopeful that the combination of a good monsoon season and the upcoming festivals will drive a rebound. Madan Sabnavis, Chief Economist at Bank of Baroda, expressed confidence that rural demand will pick up in the second half of the year, boosting overall consumption.

He also expects India to still achieve over 7% growth, with consumer goods performing particularly well.

The India Meteorological Department reported 7.6% more rainfall than usual during the monsoon season, which has been beneficial for agriculture but may have slowed down other sectors. Aditi Nayar, Chief Economist at Icra, suggested that heavy rainfall might explain September's lower GST collections but remains optimistic that the festive season will increase sales volumes and revenue.

Sonal Badhan, Economist at Bank of Baroda, echoed this sentiment. She noted that several international organizations, such as Moody’s and S&P, have revised their GDP forecasts for India upward. Moody’s now expects 7.2% growth for the current fiscal year.

"Festive demand will help sustain the momentum. Urban demand, as seen in air passenger traffic and the services PMI, remains strong. We're more optimistic than many organizations about India’s growth for FY25, predicting 7.3-7.4%," she added.

The Festive Spirit Is Strong

Traditionally a time for indulgence, this festive season looks promising for consumer spending. A survey by Local Circles revealed that urban households are expected to spend around Rs 1.85 lakh crore during the 2024 festivities. There’s increased interest in home decor, beauty, and fashion, and although e-commerce is growing, 70% of urban households still prefer in-store shopping.

Luxury spending is also on the rise, with more consumers willing to splurge on premium brands and experiences. From vacations to high-end products, this trend reflects growing consumer confidence.

Automakers Pin Hopes on Festivities

The automotive sector is particularly hopeful. With Navaratri, Dussehra, and Diwali approaching, automakers expect the festive period to reverse the current downward trend. Tata Motors and Maruti Suzuki have already seen an increase in bookings, and attractive discounts and financing options are likely to boost demand.

Even luxury car manufacturers are anticipating strong sales as affluent consumers look to celebrate with high-end purchases.

Looking Ahead

The key question remains: can the festive season truly jumpstart the economy? Private consumption, which accounts for nearly 60% of India’s GDP, will play a crucial role in sustained growth, and the next few months will be revealing. While recent data reflects a slowdown, the festive season presents an opportunity for sectors like retail, automotive, and consumer goods to bounce back.

If both rural and urban consumers start spending, this celebration-filled season could do more than spread joy—it might also pave the way for a much-needed economic recovery.