The rising rural distress has led to slowdown in private consumption as households have gradually reduced consumption due to insufficient income growth.
The rising rural distress has led to slowdown in private consumption as households have gradually reduced consumption due to insufficient income growth. Agricultural wage growth remains depressed due to muted growth in domestic and global food prices. The economy, which is likely to grow at 7% in FY19 as compared to 8.2% in FY17, has been battered by a slowdown in manufacturing output, tepid growth in investment, declining household savings and muted growth in non-food bank credit.
Volume growth at leading FMCG companies that derive more than a third of sales from rural areas has dropped. In fact, for the first time in five quarters, FMCG major HUL reported single digit (7%) volume growth in the three months to March this year. Even other consumer staple companies such as Britannia, GSPL and Dabur are witnessing slowdown.
Automobile sales have seen a sharp slowdown in recent months as retail sales of motor vehicles fell 8% to 1.64 million units in April from a year. In fact, passenger car volumes have dropped in nine of the past 10 months.
As consumers curb spending growth in sales of passenger cars was 2% in the last fiscal year, the lowest in five. Two-wheeler volume growth, too, fell to the lowest since Narendra Modi’s note ban in November 2016.
The slowdown, which started with real estate sales five years ago, has now spread across. The priority of the next government will be to revive the economic growth and pump up consumption to boost investment.