Nomura Report: Rural Consumption Grows at Slower Rate, Urban Consumption Declines Compared to Previous Years.
A recent report from Nomura highlights how economic shocks such as demonetisation, goods and services tax (GST) implementation, and the COVID-19 pandemic have significantly influenced the growth of consumption expenditure over the past decade. According to Business Standard, which cited the Nomura report, these shocks have had an impact on both rural and urban consumption patterns, leading to a slowdown in consumption expenditure growth compared to the preceding decade.
The report indicates a lower compound annual growth rate (CAGR) for both rural and urban consumption during the period of 2012-23 compared to previous years. Specifically, real rural consumption grew at a CAGR of 3.1% during 2012-23, down from 6.6% in 2010-12, while urban consumption slid to 2.6% from 5.2%. This contrasts with the growth rates of 4% for rural consumption and 4.4% for urban consumption during 2005-10.
Furthermore, the report highlights a divergence in urban-rural consumption growth, noting that rural consumption has seen relatively more superlative nominal growth over the last decade compared to urban consumption. However, it also points out that inequality reduction in both rural and urban households has been driven by reductions in consumption among top spenders rather than increases among the bottom-most spenders.
The report also sheds light on changing consumer trends, indicating a shift in spending patterns towards non-food and fuel categories, particularly in rural India. It highlights an increase in the share of spending on items such as beverages, processed food, fruits, conveyance, and durable goods, suggesting evolving consumer tastes and preferences.
However, the report also notes challenges faced by small and medium-sized businesses, particularly in the wake of demonetisation and GST implementation. While demonetisation accelerated digitalisation for many small industries, micro industries faced instability, and the complexities of the GST regime reportedly drove many small enterprises out of business, leading to job losses across various sectors.
Overall, the Nomura report underscores the significant impact of economic shocks on consumption expenditure growth and highlights the evolving dynamics of consumer behavior in response to these challenges.
Sources: The Wire