SME Times News Bureau | 20 May, 2019
India's consumption driven demand has derailed and the
government and the private sector need to urgently come out with a booster dose,
said experts.
Farm distress, global headwinds and stagnant wages are hitting consumption,
said a news agency report, adding that these have cumulatively hampered sales,
thereby restricting production and as a result stalled job creation.
The slowdown has become evident in sectors such as automobile, FMCG and
aviation, it added.
"Consumption in India has slowed due to several factors, including low
rural demand reflected in low prices that is a by-product of low rural wage
growth and significantly low level of global food prices for a protracted
period keeping a lid on MSP," said Soumya Kanti Ghosh, Group Chief
Economic Adviser, SBI.
"Besides, private investments are not forthcoming, so public investment
should continue to keep pace, which looks difficult given the current fiscal
constraints. Therefore monetary policy should do heavy lifting as fiscal policy
is constrained."
Latest economic indicators, including Index of Eight Core Industries, Index of
Industrial Production and inflation gauges have shown a worsening trend which
industry observers fear will continue.
A case in point is the automobile off-take data. In April, car sales which
indicate urban and semi-urban demand declined 19.93 per cent to 160,279 units.
In the commercial vehicle segment, which is the key indicator of economic
activity, domestic sales went down by 5.98 per cent to 68,680 units last month.
Similarly, overall sales of two-wheelers, which include scooters, motorcycles
and mopeds, edged lower by 16.36 per cent to 1,638,388 units.
Consequently, the country's factory output has also slipped. In March, it
declined to over a 20-month low, as the output rate of the manufacturing sector
fell (-)0.4 per cent from a year-on-year (YoY) rise of 5.7 per cent.
Recently, State Bank of India's Economic Research Department in a report said:
"In Q4FY19, of 384 companies more than 330 companies exhibited negative
growth in mid-line and bottom-line."
"Perhaps, significantly depressed rural prices is disturbing rural income
and weak demand is affecting the FMCG sector."
Even the external environment is not conducive enough to revive growth through
exports as Crude oil is already hovering around $72 per barrel and trade
tensions continue to simmer.
"Demand is likely to remain sluggish in the near term. The global growth
is likely to remain patchy, implying weaker exports demand and weaker
manufacturing production," said Madhavi Arora, Lead Economist, Edelweiss
Securities
"Besides, weaker domestic demand will also weigh on industrial
production."
On the reforms front, India Ratings and Research's Chief Economist and Senior
Director Public Finance Devendra Kumar Pant said: "Structural issues
related to household savings and investments needs to be sorted out. The
basically problem is that wage growth has stagnated and in some cases it is
declining."
"In the short-term monetary policy easing and active transmission from
banks might boost sentiments, but for the long-term resolving structural issues
related to household savings and investments is the key."
In addition, a recent report published earlier this month by Kotak
Institutional Equities Research quoted certain references made by FMCG
companies in their 3QFY19 earnings calls, where requirement of 'stimulus' was
hinted.
"... We see a major shift in tone (for the worse) on short-term demand
narrative in the management commentaries of the companies that have reported
thus far. When a generally-measured management like HUVR's uses the term
'recession' in its comments in the post-results presser, it generally isn't a
one-quarter blip," the report said.