The report also added that this ongoing decline is adding to the structural challenges faced by various annual surveys and data sets, including the Periodic Labour Force Survey (PLFS), the Annual Survey of Unregistered Enterprises (ASUSE), the Reserve Bank of India’s KLEMS data, and the Household Consumer Expenditure Survey (HCES).
“The emerging picture indicates that the household (HH) situation in India has weakened further in recent months with real income continuing to decline thereby extending the structural drag” the report mentioned.
Despite the prospect of a better monsoon providing a glimmer of hope, the report highlighted that the key factor that could alleviate this structural drag appears to be increased government spending, particularly at the state level, aimed at uplifting rural incomes.
The report added that for now, however, the decline in real HH income, which accounts for 78 per cent of GDP, suggests that any recovery will be gradual at best. This will likely continue to weigh on real GDP growth and present challenges for the banking sector.
“We anticipate higher government spending towards uplifting rural income, specially at the state level, to be the key driving factor out of the structural drag” noted the report.In the consumer discretionary segment, the report added that the muted growth has been reported due to subdued demand. However, there is a notable exception as the value fashion retailers have posted strong numbers, supported by steady margins.It also added that many companies have managed to maintain their margins by limiting discounts during the end-of-season sales (EOSS). Segments such as jewellery have also seen growth, bolstered by sales during Akshaya Tritiya, though margin growth in this segment has been tempered by increased competition.
The report highlighted that the Reserve Bank of India (RBI) has been actively tightening regulations, which has led to a slowdown in the growth of retail loans. As of June 2024, retail loan growth stood at 16.1 per cent, down from 19 per cent in May 2024 and 21.3 per cent a year earlier.
“Acting on both fronts, RBI’s regulatory tightening has resulted in the slow growth of retail loans that now stands at 16.1% (Jun’24) from 19 per cent in May’24 and 21.3 per cent a year back” said the report.
The most significant deceleration has been observed in credit card loans, which have declined by 14.2 percentage points year-on-year (YoY), followed by vehicle loans (-8.1 percentage points) and other personal loans (-13.2 percentage points).
As per the report the housing loans, however, have remained steady, with a slight increase of 1.3 percentage points to 16.1 per cent.
Looking ahead, the report added that the companies are cautiously optimistic about a gradual recovery in rural demand, driven by ongoing distribution expansion and channel stocking in preparation for the upcoming festive and wedding seasons.
