scorecardElephant will not march but run, powered by private consumption: Union AMC
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Elephant will not march but run, powered by private consumption: Union AMC

Elephant will not march but run, powered by private consumption: Union AMC
IndiaIndia5 min read
The Indian economy, often referred to as an elephant, looks set to grow fast fueled by private consumption    Canva
  • The next two decades and not just the next five years will be India’s ‘moment of reckoning’, according to Union AMC.
  • The Indian economy’s growth will be fueled by private consumption, which contributes 55% to GDP.
  • Several key private consumption metrics are still at a fraction of the average of the top ten nations, Union AMC said.
The next two decades and not just the next five years will be India’s “moment of reckoning”, according to a new report by Union Asset Management. The report adds that India’s growth engines are expected to grow larger and faster, fueled by private consumption.

"We are lucky to be born in India at the right time to benefit from its bountiful growth. Whether you like it or not, the elephant will not march but run. We all have a chance to ride it," said Hardick Bora, co-head, equity, Union AMC.

The Indian economy has grown faster than most other major economies of the world. Most recently, it beat the UK to become the fifth largest economy of the world.

Despite the fast pace of growth, there is a lot to be desired. The per capita gross domestic product (GDP) has grown from $814 in 2006 to $2,280 in 2021. However, India is still far behind the average of the top ten largest countries, which stands at $43,037.

The credit for India almost tripling its per capita GDP goes to private consumption, which is a major contributor to GDP at 55%, according to the report.

"A significant 55% of our GDP comes from private consumption. So, when we own more cars, consume more electricity, use more internet, and travel more, it will drive private consumption and government capex to facilitate the same. That's the fuel for economic growth. The elephant dances on,” said Sanjay Bembalkar, co-head, equity, Union AMC.

‘Not perturbed by short-term volatility’

India also trails behind the average of top ten nations in several other key metrics like key nutrition like fat, calories, energy consumption per person, vehicle ownership and others. While this means India still has a lot of catching up to do, it also means that the economy has a large scope for growth.

"The gap between India and the rest is bridging very fast and is driving growth for the country. And that is why we are not perturbed by short-term volatility in the markets and are bullish on the long-term prospects of India," said Bora.

Particulars20062021Avg of top 10 nations
Daily supply of fat (per person)45 grams60 grams138 grams
Daily supply of calories (per person)2,256 kcal2,533 kcal3,398 kcal
Energy use (per person)669 kWh1,218 kWh7,987 kWh
Vehicle ownership (per 1000 people)2559628
Internet usage (per person)2%43%87%
Air travel (revenue passenger KM)361733,090
Extreme poverty40%10%0%

Source: Union Asset Management

Consumption slows down

After a post-pandemic boom effect, consumption has slowed down across segments in the third quarter – a factor that’s been worrying analysts. Although inflation cooled down in the December quarter, management commentaries say that discretionary consumption declined in urban as well as rural areas.

“Multi-year low margins recorded in Q3 FY23 reflect some grave challenges, which could possibly be on account of heightened competitive intensity over the past two years and inflationary stress still pertaining in the discretionary value segment,” said a report by ICICI Direct.

Given that private consumption plays a huge role in the economic growth of India, addressing the consumption slowdown will be key to ironing out the kinks on the path of growth.

“Inflation has had a major impact on bottom-of-the-pyramid consumption. We see healthy demand in the top tier of the pyramid,” said Union AMC.

On the discretionary side, the firm said that the penetration of services like quick service restaurants, cinemas, or media is still low, and when companies operating in this sector increase their reach, it will act as a growth tailwind.

Analysts continue to have mixed views on consumption recovery. Motilal Oswal says there is a lack of clarity in this regard, analysts at Phillip Capital say there could be an uptick in the next one to two quarters on account of higher-than-usual weddings this month.