Budget 2024: India's consumption story could show its true colours in 2024-25

India’s consumption story is dividing opinions, with some indicators pointing at robust demand while others suggest that there are cracks in the tale.

Private consumption is the biggest component of India's economy, accounting for 57 percent of the GDP in 2023-24. However, the same data shows growth in private final consumption expenditure is set to fall to a three-year low of 4.4 percent this year from 7.5 percent last year.

India's economic recovery post the pandemic has most frequently been characterised as 'K-shaped': led by the upper class, with growth in demand for premium goods outstripping that for the mass-market segment.

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However, Soumya Kanti Ghosh, State Bank of India's group chief economic adviser, does not agree with this assessment. According to Ghosh, alternative data indicators – such as the number of Zomato users – are the "perfect example…to refute the claim that people are facing distress".

Ghosh, though, is in the minority.

"Consumption growth post pandemic has been mixed, with slow recovery in rural demand," Morgan Stanley economists Upasana Chachra and Bani Gambhir said in November 2023.

According to Chachra and Gambhir, private consumption should recover further going forward as the gap between rural and urban demand and demand for goods and services narrows. Supporting factors are likely to be cooling inflation, bettering of terms of trade for the rural sector, and improvement in labour demand conditions, among others.

Also Read: From clothes to PCs, falling Indian production points to weak demand

The recovery seems to be on the way, with QuantEco Research pointing out that rural consumption, as per its proprietary TRUCE index, had exceeded urban consumption in October 2023 for the first time in more than two years.

"The expected recovery in agri output should further support rural consumption momentum in the next fiscal year," QuantEco Research's economists said in a note on January 8.