Fitch pares household spending forecast for 2021

Published on Aug 27, 2021 02:58 AM IST

India’s household spending contracted 9.3% in 2020 because of the first wave of the pandemic.

Fitch Solutions said elevated retail inflation in India is a key risk to consumer spending over the remainder of this year, as it can erode purchasing power.(HT)
Fitch Solutions said elevated retail inflation in India is a key risk to consumer spending over the remainder of this year, as it can erode purchasing power.(HT)
Livemint | ByAsit Ranjan Mishra, New Delhi

Market researcher Fitch Solutions on Thursday pared its household spending growth estimate for India to 8.9% in 2021 from 9.1% estimated in June, citing the tepid pace of the country’s Covid vaccination drive. However, its latest India Consumer Outlook said that consumer spending would recover to the pre-pandemic level in 2022.

“India’s vaccination drive has been tepid with 32.5% of the population receiving at least one vaccine dose (as of August 21, latest data available). This is slightly below the Asia average of 33%. We believe that mass vaccinations will further accelerate the unwinding of restrictions,” said Fitch Solutions, an affiliate of rating agency Fitch Ratings.

India’s household spending contracted 9.3% in 2020 because of the first wave of the pandemic. Fitch Solutions said total household spending in real terms is forecast to reach 72.6 lakh crore in 2021, below the 2019 (pre-pandemic) level of 73.5 lakh crore.

“As a result, we believe that the recovery of India’s consumer and retail sector will spill into 2022, where we forecast real household spending growth to reach 7.1%. In 2022, we project real household spending to reach a total of 77.7 lakh crore. This is 5.8% more than the total spending in 2019, indicating that a full consumer spending recovery will take place in India in 2022,” it added.

Consumer confidence in India took a hit in 2020. It fell to a five-year low of 49.9 (September 2020) and 97.9 (May 2020) for the current situation index (CSI) and future expectations index (FEI), respectively, as per surveys conducted by the Reserve Bank of India.

“Poor consumer demand has impacted credit growth as people postponed their non-essential spending. In July 2021, India’s CSI scored 49.0, despite the second wave tapering off, indicating that consumers hold a gloomy outlook of the current and short-term economic situation, which will weigh heavily on consumer spending. However, we note that the FEI is trending upwards, from a low of 96.4 in May 2021 to 104 in July 2021, which suggests that consumer spending on big-ticket items will likely be deferred until the economic and health situation in the country stabilizes,” Fitch said.

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