India's consumption growth may lose steam: Axis Bank

India's consumption growth may face challenges in the coming months as household spending is increasingly supported by government subsidies and rising borrowings, which may not remain sustainable, Tanay Dalal, Senior Vice President, Economic Research at Axis Bank, said in an exclusive interview with ANI.

Dalal said the Indian economy is currently performing reasonably well, with several high-frequency indicators showing healthy activity. However, some sectors are showing signs of caution, particularly retail sales and automobile demand.

Beyond these indicators, Dalal raised concerns about the sustainability of household consumption, saying that headline spending numbers do not fully reflect the support coming from government spending and borrowing.
"Consumption numbers look good on a headline basis, but probably are supported by public sector spending of around 1.7 to 2% of GDP," he said.

He explained that indirect government support, including fertilizer and LPG subsidies and cuts in excise duty on fuel, has contributed around 1.7% of GDP. This could increase to 1.92% if crude oil prices remain above $100 per barrel.

Household borrowing is also playing an important role in supporting consumption. Dalal said non-banking financial company (NBFC) credit to households is around 40%, while unsecured loans by banks are growing around 30% year-on-year.

"This consumption tailwind might not be sustainable going ahead," he said, warning that growth could face headwinds if financial and public sector support weakens.

Dalal also highlighted the impact of rising prices on household spending. He estimated that retail inflation could have reached around 6.3% in October, although he said he had not completed his calculations.

"There were already signs of households trying to save a buck, households slowing down personal consumption, households straining on the credit side," he said.

Despite these concerns, Dalal said several other parts of the economy were performing reasonably well. He highlighted a pickup in medium-technology exports, with India importing low-technology items while exporting more medium-technology products.

Expansion in global capability centres (GCCs) and higher use of spare refining capacities amid strong crack spreads were also supporting economic activity. - ANI