Your shopping will drive India’s economy; this is where GDP growth will come from

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Published: November 18, 2019 1:56:36 PM

Shopping more can help India's GDP growth as the private consumption expenditure will continue to drive around 60% of the nominal GDP in the current financial year.

Indian economy, GDP growth rate,BofA-ML Report, Muted Diwali demand, RBI, GVA growth, demonetisation, note banIndian consumer retail is largely unorganized sector with 90% of total retailers having a turnover of less than ,000 per month.

Shopping more can help India’s GDP growth as the private consumption expenditure will continue to drive around 60% of the nominal GDP in the current financial year. While the country has been reeling under a slowdown with sales of many sectors hitting rock bottom, purchases made by individuals will drive India’s nominal GDP, consultancy firm Redseer said in its recent report. Further, consumer spendings on goods and services will account to half of the total goods consumed in the country, the report said. The consumer retail market is likely to touch $1.6 trillion by FY25. Currently at $886 billion, the Indian retail market is growing at a double-digit 10% CAGR and will reach close to $1.57 trillion.

Indian consumer retail is largely unorganized sector with 90% of total retailers having a turnover of less than $40,000 per month. These retailers remain under-served by brands and distributors. On an average, these retailers make 65-70% fill rates, even from brand distributors, Redseer said. “Estimated 70% products reach retailers through wholesalers without formal credit, no service and limited selection,” the report added. 

Of India’s 1.5 crore retail stores, close to half of them sell Fast-moving consumer goods and 15% sell fashion and accessories. “High number of retail stores creates a challenge for demand consolidation for brands,” Redseer said. 

Issues in unorganised sector

Indian unorganised sector is afflicted with various issues such as demand fulfilment, demand unpredictability, payment collection etc. From the buyer’s perspective, product availability and quality, conflict resolution remain chief areas of concern. 

However, eB2B is emerging to solve many of these issues. According to Redseer, all product categories are likely to see healthy growth levels, including FMCG and grocery, consumer durables and electronics, beauty and personal care, and fashion and accessories. “Increasing penetration in tier 2 and above cities is expected to drive growth,” Redseer said.

Meanwhile, Moody’s Investors Service has downgraded its forecast for India’s 2019 (calendar) GDP growth by 60 bps to 5.6%. This is a continuing trend of such downward revisions by prominent domestic and foreign agencies. “We now forecast slower real GDP growth of 5.6% in 2019, from 7.4% in 2018. We expect economic activity to pick up in 2020 and 2021 to 6.6% and 6.7%, respectively, but the pace to remain lower than in the recent past,” Moody’s said in its latest Global Macro Outlook report early last week.

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