• Notification Date: 12-03-2024
• Notification No: N/A

Economic Shocks hit Consumption Growth in Last Decade: Nomura

The successive economic shocks such as demonetisation, goods & services tax (GST) implementation and Covid may have led to a slowdown in consumption expenditure growth in the previous decade as compared to the preceding decade, Nomura said in its latest Asia Economic Monthly report released on Friday showed.  

The report notes that the compound annual growth rate (CAGR) between the two consecutive consumption surveys (i.e. growth in the period between 2011-12 and 2022-23) for both rural and urban consumption has been materially lower than growth in the earlier periods. 

The global investment banker analysed the results of the latest Household Consumption Expenditure Survey (HCES) released by the National Statistical Office (NSO) in February. 

According to Nomura, while real rural consumption grew at a CAGR of 3.1 per cent during 2012-23 as compared to 6.6 per cent in 2010-12, growth in real urban consumption slid to 2.6 per cent from 5.2 per cent during the same period.  

During 2005-10, rural and urban consumption in real terms grew at 4 per cent and 4.4 per cent, respectively.  

“Even if we deflate expenditure by using suitable measures of inflation, we find a similar CAGR drop in real consumption expenditure, indicating that the fall is not an inflationary phenomenon. This is not surprising, with the last decade witnessing shocks such as demonetisation, GST implementation and the pandemic,” the report notes. 

The report also notes that the nominal growth over the last decade (2012-2023) has been relatively more superlative for rural consumers. 

Rural consumption has gone up by 164 per cent during 2012-23 period in comparison with around 146 per cent for urban consumption, suggesting convergence in consumption levels. Earlier, between 2000-12 period, rural consumption has grown by 194 per cent, in comparison to 207 per cent in urban areas. 

However, delving into the claim of inequality reduction, the report notes that inequality has reduced for both rural and urban households. It has been primarily driven by top spenders reducing their consumption rather than the bottom-most spenders increasing their consumption. Here, the situation is comparatively better for urban India. 

“Rural India seems to be experiencing a ‘middle-class bulge’, which has seen maximum consumption growth among the consumer fractile classes, while growth has been much lower for the top spenders. The pattern is different for urban households, where the bottom consumption brackets have seen maximum consumption growth, which has progressively declined as we move into the higher brackets. This may be because the middle class in rural India seems to have benefited more from handouts than their urban counterparts,” the report notes. 

Further, the report also takes note of the changing consumer tastes. The data on consumption patterns shows that over the past decade, Indian consumers are spending less on food and more on ‘core’ (non-food & fuel) categories — more so in rural India. 

“Within the food categories, there has been an increase in the share of spending on beverages & processed food and fruits. These are typically indicative of more expensive and discerning consumer tastes. Within the core basket, consumers are mainly spending on conveyance and durable goods. The former suggests that consumers are increasingly becoming more mobile and possibly that transportation costs have disproportionately picked up. The rise in durable goods consumption suggests that aspirational consumption has picked up,” the report added.  

On the flip side, the report also notes an increase in the share of spending on intoxicants and toiletries, other household consumables and entertainment. 

Consumers are ‘curiously’ spending a lower share of their income on clothing, footwear and education.