The World Bank cut India’s growth for FY2023 to 6.5%, this was a drop of 1% from its earlier forecast of 7.5%. The fresh forecast was attributed to the Russia-Ukraine war as well as global monetary policies. In its South Asia Economic Focus report released on October 6, 2022 the World Bank said:
‘The spillovers from the Russia-Ukraine war and global monetary policy tightening will continue to weigh on India’s economic outlook: elevated inflation on the back of higher prices of key commodities and rising borrowing costs will affect domestic demand, particularly private consumption in FY2023/24, while slowing global growth will inhibit growth in demand for India’s exports’
Increased domestic consumption
The Report did point to the fact, that India has witnessed a rise as a result in economic activities and increased consumption in recent months (private expenditure is a key driver of India’s growth). It would be pertinent to point out, that retail businesses witnessed a growth of 15% in August 2022 itself.
Consumer sentiment has also increased during the current festival season owing to the fact, that celebrations in 2020 and 2021 were muted due to Covid19. Both online and offline retailers who have given numerous promotions are likely to benefit from the increased consumption. E Commerce festive season sales which began towards the end of September witnessed a significant rise with maximum expansion happening in the personal care sector as well as electronics.
Here it would be important to point out, that a significant portion of the demand is coming from Non-Metro cities and tier 2 and 3 cities and is not been driven by metros. If one were to look at sales growth in August 2022, region wise it is interesting to note that East India witnessed growth of 19% as compared to August 2021, while North India saw a growth of 18 percent vis-à-vis August 2021. South and West India witnessed 12 percent and 11 percent growth respectively vis-à-vis August 2021.
Apart from consumption, domestic tourism has also picked up significantly in recent months (though India has still not been able to attract many international tourists ever since it has opened up) and been one of the drivers of growth. The easing out of restrictions, and the fact that individuals were not able to travel for two years were the propelling factors, apart from the restrictions on international travel which were eased out b. In April 2022, domestic passenger traffic was estimated at 10.5 million, which was only 5% lower than the pre-covid levels — 11 million — in April 2019. The hospitality sector witnessed an over 300% (339.3%) year on year revenue rise in the April-June quarter. It is not just leisure trips, but also ‘staycations’ to nearby luxury hotels, as well as destination weddings which have helped in giving a significant boost to the hospitality sector. As a result of increased domestic tourism during the pandemic not only have earlier unexplored destinations managed to attract tourists, but even those in the hospitality industry have been compelled to look at newer models (it is likely for instance that more luxury resorts will come up near metropolitan cities).
In conclusion, while the forecast for India’s growth may have dipped increased consumption, especially during the festival season will give a boost to the economy, apart from the tourism and hospitality sector. It is interesting to see that consumption growth in India is not driven any longer by metropolitan cities or some specific regions. At the same time, the geopolitical uncertainty – especially arising out of the Ukraine-Russia war – as well as the global monetary policy could pose significant challenges to the economy.
