In the current fiscal, consumption is seen down 10-12%, reaching pre-covid levels only by 2022. Household consumption includes expenditure on food and grocery, housing and household products, transport and communication, health, and education.
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The overall consumption growth is also likely to get delayed by up to two years, the report said. Given the uncertainty around covid 19, it is difficult to have a definite estimate, but the BCG consumer income and expenditure model suggests that total household consumption spending is likely to reach ₹290-300 trillion by 2030, similar to its initial pre-covid estimates for 2028.
Over the last decade household consumption in India grew 13% year-on-year as more Indians stepped out of their homes to work, earn, save, and spend, propelling household consumption to touch Rs120 trillion in 2019.
Even though the average annual household income is expected to rise to around ₹7.3 lakh by 2030--nearly 40% higher than it is today-- this will be 7-8% lower than pre-covid estimates, according to the report titled “How India Spends, Shops and Saves in the New Reality?" underling the impact of the crisis that has ravaged the world and bruised economies.
Though there’s been a gradual recovery in the economy since the lockdown has been lifted, India has seen millions of workers lose their jobs, while GDP is expected to contract in FY21. The year has been marked by increased financial uncertainty among households, preventing them from spending freely. This, said the authors of the report, will create impediments for recovery across discretionary categories.
“Consumption has been significantly impacted in the very near term and is expected to decline by 10-12% in this fiscal. Recovery will hinge upon how covid-19 can be sustainably managed. We estimate that it may take 1 to 2 years to get back to pre-covid trajectory…four fundamental growth drivers (affluence, awareness, attitude and access) will drive nominal consumption growth at a steady rate of 11% up to 2030," said Abheek Singhi, managing director and senior partner, The Boston Consulting Group, India.
The report added that the impact of covid-19 has been varied across consumer and geographic segments.
BCG said the recovery in rural India—touted by several FMCG companies as the growth driver—might be more short-lived than expected. “Certain trends like the increasing role of rural is likely to be short-term in nature while others like the increasing contribution of tier 2 and 3 cities to consumption growth is likely to persist in the long-term," it said.
BCG’s research suggested impact on income levels has been deeper among the lower income classes and in bigger cities.
The pandemic is also likely to have mid-to-long term impact on consumer shopping behaviour—already visible in ways they shunned discretionary categories, went easy on buying new clothes and instead prioritized essentials that led to a surge in sales of hygiene products, staples, home appliances and even streaming services.
BCG expected consumers to switch to “functional" purchase drivers across categories as they increasingly focus on tangible value of the product. Price will continue to hold sway in most categories (except food related categories) with consumers trying to make ends meet.
The report stated that consumers are likely to turn more brand conscious in food and health related categories. Also, pandemic pushed customers towards digital adoption and online shopping, the stickiness of this behaviour is likely to vary across categories.
Indians also turned to saving more in the aftermath of the lockdown.
Estimates by India’s central banker suggest that India's household financial savings rose to 21.4% of the gross domestic product (GDP) in the June quarter of current financial year, up from 7.9% in the corresponding period last year.
BCG corroborated the Indian households’ propensity to save but cautioned that it could be a short-term phenomenon.
“…there has been a spike in savings since February 2020—most likely driven by a lack of expenditure avenues due to lockdown measures and restrictions on mobility," according to the findings of the report.
However, this is expected to be a short-term phenomenon rather than a secular trend, BCG analysts said.
Real estate and gold have been the preferred forms of savings for Indian consumers. In fact, BCG estimates that during covid, Indians gravitated even more towards tangible assets and showed a preference for gold.
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December 17, 2020 at 06:37PM
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Covid to hit India's household consumption in 2021 as well: BCG report - Mint
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