Just a quarter ago, the consensus was that tepid global demand and slow recovery in domestic demand had led to spare capacity at most Indian companies, forcing even those with a lower debt profile to postpone expansion plans. But things may be turning around. The Indian consumption story is slowly taking shape although data on industrial production remains disappointing. The growth rates in automobile sales, air passenger traffic or retail loans indicate that a recovery of demand may be under way. Consider the following, passenger vehicle sales, which grew 3.7 per cent, year on year (y-o-y), and 7.3 per cent in financial years 2014-15 and 2015-16, respectively, have reported growth of 17.8 per cent in the July-September 2016 quarter. Two-wheelers sales, which grew only three per cent in 2015-16 over the previous year, galloped at 20 per cent plus in the last quarter. Data on air traffic, too, remains encouraging with a 23 per cent y-o-y growth in calendar year 2016 over a 20 per cent growth in 2015. India, in fact, is the fastest growing air traffic market in the world, ahead of China, which is growing at about 10 per cent a year.
Retail credit has also been a bright spot as it has grown in the 18-20 per cent range, y-o-y, in 2016. Retail loans for personal vehicles and consumer durables are growing faster, while housing loans are rising a little lower than the overall retail credit growth rate. If the banking system has still reported total credit growth of just 9-10 per cent, that's because demand from the corporate side has been weak and public sector banks are in a bind as they wrestle with stress in their loan books. Consumer durables have grown under 10 per cent in 2014 and 2015, but manufacturers say demand has improved this year and expect robust festive season sales. There is anecdotal evidence that in the past month or two consumers are returning to restaurants, cinemas, shopping malls and e-commerce portals in greater numbers. To be sure, it is not roses all the way. In some other consumer-facing industries growth has been lukewarm, especially in fast-moving consumer goods, which has struggled with volume growth that has more than halved to 3.2 per cent from four quarters ago. A poor monsoon for two years has left little money in the rural Indian's pocket, which has reduced consumption.
However, there is hope in the air. After two years of below normal monsoon, this year's rains have been abundant and well spread, and credit rating agency CRISIL believes that this will revive farm income and push up private consumption from 7.4 per cent in 2015-16 to 8.3 per cent in 2016-17. So far, urban consumption remains healthy and will benefit further from lower inflation. Festive season sales on e-commerce portals are expected to have clocked nearly $1.2 billion in revenue. The Seventh Pay Commission and the One Rank-One Pension scheme will put money in the pockets of government staff and retired defence personnel, both of which will lead to more spending. The recent interest rate cut and the transmission of lower interest rates are also expected to result in cheaper credit and encourage further spending. Overall, it appears that the power of the consumer and her confidence about the future are likely to be the swing factors shoring up India's growth rate for the next few quarters.
