Old demand versus new: Is Indian industry investing in tomorrow’s sectors?

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Subscribe to enjoy similar stories. The festival season that is now drawing to a close began under a cloud of dark concerns about a further slowdown in consumer spending in India. There have been stray signs of a welcome revival in some segments of the consumer market since then.

But these streaks of good news do not seem to be enough to blow away the larger questions that have been hanging over the Indian consumer economy for more than a year now. Each company has a different story to tell, depending on its immediate sales. So aggregation is tricky.

Even the macro view is mixed. The finance ministry noted in its September review that urban demand is weakening while rural demand is strengthening. The Reserve Bank of India has said in its latest monthly report on the economy that there are signs of consumer spending shaping up for a revival in smaller towns and lower-tier cities.

Yet, these are framed against larger concerns about a slowdown in consumer spending. The underlying reason is not just consumer sentiment, but also the hard reality of anaemic growth in real household earnings in recent years, during an impressive economic recovery that has been led by profits rather than wages. Household spending power has barely kept up with increasing prices.

The stock of excess savings that were built up during the pandemic-era lockdowns, and which were a forced financial buffer for households with steady incomes, have been spent down. The inertia in consumer spending is not just a problem in itself; it acts as a drag on business investment as well. Companies are less likely to buy new machinery to expand their production facilities when they are not sure of the state of demand.