Urban demand drives consumer durables output to 14-month high

At a time when rural consumption remains tepid, buoyancy in urban consumption primarily caused consumer durables production to spike to a 14-month high in August, say experts.

As per the August Index of Industrial Production (IIP) data – consumer durables output rose 5.7% year-on-year. In the past 14 months, the sector’s output has contracted year-on-year in 10 months.

“India’s overall consumption demand remains driven by urban demand with strong rise in passenger vehicle sales, domestic air travel, rise in electronic goods imports and strong growth in personal loans,” said Gaura Sen Gupta, economist, IDFC FIRST Bank.

“Rural demand, on the other hand, showed a mixed trend due to uneven monsoon performance,” she said. In the south-west monsoon period, which ended in September, rainfall has been particularly weak in east and north-east India, followed by south India. The total rainfall received in June to September was 94.4% of the bench mark – long-period average (LPA), or ‘below normal’.

In August, passenger vehicles recorded highest-ever sales at 359,228 units, 9.4% up on year, and domestic air traffic witnessed a sharp growth of 22.8%.

Both the indicators are used to gauge urban demand conditions, which seems healthy.

On the rural front, domestic tractor sales – a proxy for rural demand – increased marginally by 1.1% year-on-year in August, according to data from the Tractor and Mechanization Association. In September, tractor sales plunged 14.7%.

Fast moving consumer goods major Hindustan Unilever Limited (HUL) posted a flat consolidated net profit in the July-September quarter, and blamed the subdued rural demand for their results.

More than “uneven monsoon”, rural demand has also been bearing the brunt of high inflationary pressures. In August, CPI-rural inflation was at 7.02%, while CPI-urban was at 6.59%. In September, the former was at 5.53%, and the latter at 4.65%. High inflation would have depressed non-essential spending in rural areas, thereby curbing consumption.

Cumulatively, in the first-five months of FY24, the consumer durables output has averaged (-)0.9% as against 17.9% in the corresponding period of FY23. Among the six sectors in IIP’s use-based category, it’s only consumer durables whose output has recorded contraction in April-August.

Madan Sabnavis, chief economist, Bank of Baroda, said that the coming months will determine whether consumption has actually picked up as producers increase their output.

“Rural demand will hold the clue here and there can be some pressure from lower output in some crops. Urban demand has been good for premium products so far which will persist through the season for both goods and services. Companies have so far reported on output performance up to September where a cautious picture has been painted,” he said.

The Reserve Bank of India (RBI) has projected India’s economy to grow 6.5% in FY24. The RBI’s October Monetary Policy Statement had said, “domestic demand conditions are expected to benefit from the sustained buoyancy in services, revival in rural demand, consumer and business optimism, the government’s thrust on capex, and healthy balance sheets of banks and corporates.”