Domestic consumption held gains in April, rural recovery continues

Urban consumption continued to be more dominant than rural consumption in April.

India's consumption levels maintained their gains in April, with the rural economy continuing its ongoing gradual recovery, according to QuantEco Research's TRUCE index.

The indices for both urban and rural consumption in April edged up marginally by 0.1 to 0.68 and 0.57, respectively, QuantEco Research said in a note on June 19. While the urban index is now at its highest – QuantEco Research's data goes back until April 2018 – the rural index is at a five-month high.

The Tracking Rural Urban Consumption Expenditure, or TRUCE Index, is QuantEco Research's proprietary index that intends to fill the gap in Indian economic data caused by the absence of a measure of retail sales. The monthly TRUCE index measures consumption on a scale of 0 to 1.

"...while petrol consumption eased, it was more than offset by sales of passenger vehicles soaring to a record high along with moderation in urban CPI (Consumer Price Index) inflation," QuantEco Research commented.

Source: QuantEco Research

The rural index, meanwhile, was aided by an uptick in production
of consumer non-durable goods, improved rural credit growth, and cooling down of rural retail inflation. These highlights made up for the seasonal decline in fertiliser sales and agricultural exports.

While cooling inflation has aided consumption - CPI inflation declined to an 18-month low of 4.7 percent in April before falling further to a 25-month low of 4.25 percent in May - the tightening of monetary policy in 2022-23 by the Reserve Bank of India (RBI) is expected to be a dampener for urban demand in the coming months - although not for services.

"We anticipate urban leveraged consumption of goods to wane in 2023-24, as pass-through of past monetary tightening to consumers gets completed. Services consumption in comparison could retain growth momentum at least through April-September 2023 with still ground to cover vis-à-vis pre-COVID levels," QuantEco Research said.

Rural consumption, on the other hand, is seen benefitting from Rabi harvest-led improvement in cash flows, better agricultural wages and easing of input costs. However, risks remain in the form of El Nino's impact on the monsoon.