End of revenge spending? Urban spending to taper off in the next few quarters, says Motilal Oswal
- Urban spending growth has outpaced that of rural spending for the sixth consecutive quarter in 2QFY23, said a report by Motilal Oswal.
- Goldman Sachs has predicted that India’s GDP growth will be slower in the first half of 2023 as the post-Covid reopening boost fades away.
- As rural incomes and profitability remain weak, the rural economy may continue to grow around mid-single digits, Motilal Oswal says.
While urban spending in the first quarter of FY23 grew at 12.5% as compared to the same period last year, in the second quarter, this slowed to 8.9%. And it is likely to slow down even further in the coming quarters. However, urban spending growth has outpaced that of rural spending for the sixth consecutive quarter in 2QFY23.
“Higher inflation seems to have hurt savings more than consumption as reflected by the continued strong growth in urban spending and widening current accounts deficit. Urban growth is likely to come off in coming quarters,” the report predicts on spending patterns. As per reports, Indian household savings fell to a five-year low in 2021-22.
Last month, Goldman Sachs too estimated that India’s GDP would see a slower growth in the first half of 2023 as the post Covid reopening boost fades away and the monetary tightening through RBI’s rate hikes weighs on demand.
Rural economy continues to lag
Rural spending grew 6.1% in the first half of FY23, and 5.4% in 2QFY23, on a year on year basis. In addition to a favourable base, this growth is aided by fiscal spending, which rose sharply in the first half of the year.
Going ahead, rural spending will remain a mixed bag, the report predicts. There are two positive indicators – post-monsoon rainfall remains in surplus and it can aid Rabi crop; government spending towards the rural schemes rose once again by 11.2% in 1HFY23.
“The good news, however, ends here. Notwithstanding a good monsoon and fiscal support, rural income and profitability remains weak,” the Motilal Oswal report said.
The ‘terms of trade’ for the farm sector too have not improved, Motilal Oswal said. Based on five items – high-speed diesel, electricity, fertilisers, pesticides, and agricultural machinery and implements — it estimates that farm input prices grew 27% year on year while farm output prices grew only 12% prices – indicating stress in farmers’ income.
While salary and wages of listed companies grew in the double digits for the first time in about four years, the trend is not so encouraging in the rural areas. Real farm wages in areas like ploughing and tilling; sowing; harvesting, winnowing and threshing; picking; and animal husbandry – showed a continued downtrend, albeit at a steady pace in Q2 FY23, said the report.
AdvertisementNon-farm wages in professions like carpentry, blacksmith, masonry, tractor driving and sweeping are worse as they contracted at a much faster rate in the past three quarters. “Without a growth in farm income and profitability, the rural economy may continue to grow around mid-single digits,” the report says.
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