Weak private consumption in India largest concern, while GDP growth remain strong: S&P Global Market Intelligence

S&P Global Market Intelligence has asserted that weak private consumption in India remains the largest concern, with rural demand in particular still ‘straggling to catch up’, at a time when the country's overall growth remains strong. For the second consecutive quarter, India's real GDP growth exceeded most forecasts, bringing the full financial year 2023-24 growth to 8.2 per cent. With this, India maintains its status of the world's fastest-growing large economy. S&P Global Market Intelligence said India's strong GDP data added market optimism shortly ahead of the general election results to be announced on June 4. arguing private consumption in the country is weak, it noted ‘While positive, the headline figure does not remove concerns above the underlying strength of the economy and continues to point to uneven recovery’.  

It stated ‘Weak private consumption remains the largest concern, with rural demand in particular still straggling to catch up to India's strong overall growth. Latest high frequency data does signal that the rural demand is starting to pick up. An increase in two-wheeler sales and demand for diesel, as well as lower demand for the rural job guarantee scheme are all positive signs that the rural consumption may turn around in the coming quarters’. It also cautioned on the cloudy food inflation outlook. Food inflation in India has been consistently high. A moderation in inflation is observed since the start of 2024 but food prices remain persistently high. Retail inflation clocked 4.83 per cent in April 2024, the lowest in the past 11 months. Retail inflation in India, though, is in RBI's 2-6 per cent comfort level but is above the ideal 4 per cent scenario. Food price inflation was at 8.70 per cent in April, way above the headline figure. It noted ‘Further easing of food prices strongly hinges on the upcoming monsoon season, which so far is projected to be normal but remains a significant risk’.

Overall, S&P Global Market Intelligence projects private consumption to improve gradually to grow 6.9 per cent in the current financial year 2024-25. Private investment should also continue to recover, supported by stronger capacity utilization and overall demand. S&P Global Market Intelligence expects India's real GDP growth to slow to 6.7 per cent in 2024-25. Separately, S&P Global Ratings last week revised its rating outlook on India to positive from stable, and added that it expects continuity in economic reforms and fiscal policies regardless of the Lok Sabha election outcome. It attributed robust economic growth, pronounced improvement in the quality of government spending, and political commitment to fiscal consolidation to the rating upgrade.