Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster
  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

IIP data confirms slowing consumption
Fri, 14 Sep Pre-Open

India's economic output is primarily driven by private consumption demand. In other words, expenditure incurred by people on food, clothing, rent, education, vacations and all other activities that support living. These collectively add up to almost 60% of Gross Domestic Product (GDP). Despite the 2008 crisis, private consumption continued to grow steadily at 7-8% until 2010-11. This helped to set-off the negative impact of a slowdown in investment and government spending on GDP.

The Indian economy's sagging performance has been the result of a collapse in private-sector investment. The fear has long been that the problem will spread from the country's board rooms to the streets, with consumption faltering. The latest IIP number might make these fears come true.

The consumer durables index moved up a mere 0.8% between April and July, while it gained 4.9% over the same period last year. That's a clear sign that consumer discretionary expenditure is taking a hit, seen also from the June quarter results of paint and watch companies and from auto sales.

The picture on consumer non-durables is bleak. This index moved down 4.9% between April and July. It went down 2.8% over the same period last year. We shouldn't read too much into the percentages since the flaws in the data are well-known, but the numbers do suggest that inflation has taken a toll on basic consumption, which means that the poor are getting hurt.

There are concerns that households may react to persistent inflation and declining incomes by cutting back on non-essential expenditure. The less than normal monsoon, though its impact is not fully certain yet, may further curtail rural incomes and spending capacity. For manufacturers of FMCG goods, some of whom derive half their revenues from rural markets, this may signal a lower earnings outlook.

Overall, India is a good consumption story. And even as early as 2009-10, rural consumption demand was rapidly catching up with urban demand. Consumption demand has been the most reliable contributor to growth: that is why signs that it may be slowing down are worrying for policy makers and manufacturers.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

Read the latest Market Commentary

Equitymaster requests your view! Post a comment on "IIP data confirms slowing consumption". Click here!


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Feb 20, 2018 (Close)