Private consumption driving growth in Q3 with rural India taking lead: RBI

Mumbai, Nov 21 The slack in speed observed in the Indian economy during the second quarter of 2024-25 is behind us as private consumption is back to being the driver of domestic demand with festival spending lighting up real activity in Q3, according to the RBI’s monthly bulletin for November.

The report points out that rural India is emerging as a gold mine for e-commerce companies in this festival season; this is expected to gather further momentum with the sharp increase in kharif output and optimism around rabi production emboldening a record foodgrains target for 2024-25.

It also states that FMCG and auto companies have been stepping up ad spends to revive demand. Direct-to-consumer (D2C) brands are scrambling for funds to expand their presence and increase sales through quick-commerce (q-com) platforms – an ecosystem valued at over $5 billion and projected to reach $30 billion by 2029-30.

Retailers are reporting a pick-up in sales growth relative to the second quarter. E-two-wheelers sparkled this Diwali, although there is a distinct premiumisation that has gained further ground, as vividly evident in the luxury car segment. New cities are rising across the country with the urban population surging fourfold – by 2025, half of India’s population is expected to live in cities, boosting urban demand, according to the report.

Private investment is lacklustre as reflected in sequentially lower investment in fixed and noncurrent assets during July-September 2024 on account of subdued corporate earnings. Yet moderation in staff cost growth and a rise in non-operating income boosted net profits even after excluding the moribund oil and gas sector and the high-performing financial services sector, according to the report.

All that is needed is to get inflation down so that India reconnects with its potential. The October CPI inflation reading turned out to be a sticker shock after the wake-up call of September’s spike, reinforcing the RBI’s warnings on complacency due to sub-target outcomes for July and August. What is worrying is that apart from the sharp surge in the momentum of food prices, core inflation has edged up, the report states.

Headline CPI inflation rose above the upper tolerance band in October 2024 with a sharp surge in the momentum of food prices along with an increase in core inflation, the report added.

Source: IANS