Updated on 29th July 2015


·         Risk of further rise in retail inflation persists due to deficient monsoon.

·         Food and beverages retail inflation touches 5.7% in June, despite containment of cereal prices due to comfortable buffer stock.

·         No interest rate cuts expected till monsoon induced inflationary risk subsides.

·         On the supply side, credit growth will be constrained by high NPA and no progress in recapitalization plan for Public Sector Banks

·         Non-oil non-gold trade deficit to remain high, though the overall deficit will remain stable due to lower oil and gold prices.

·         Domestic and external negatives will allow only a marginal increase in pace of growth to ~7.6-7.8% in 2015-16.

With India expected to be fastest growing major economy in 2015, exceeding even China, consumer confidence is expectedly higher than other economies. In the Nielsen Global Survey of Consumer Confidence for Q2:2015-16, Indian consumer confidence at an index value of 131 exuberated considerable optimism compared to China (107) or US (101). However, optimism has increased only marginally when compared to Q2:2014-15 (128), and as seen in the earlier months is not really translating into increased spends. One reason could be the continued uncertainty – only around a third of consumers expect any significant improvement in economic growth.

 Moreover,the survey revealed that 80% of Indian consumers have had to adjust their spending in the past year to save more. As a result, despite 4/5th of consumers being confident about their finances and job security, they are not yet ready to splurge considering the continued high food inflation (other than cereals) and risk of deficient monsoon.

The slowdown in demand is particularly reflected in the negative growth in June IIP for consumer goods, especially in the consumer durables segment. As in earlier months, the growth deceleration is particularly felt in rural demand which accounted for around 1/3rd of consumption. Whereas rural consumption demand earlier was growing 1.5-2 times of urban demand, industry feedback shows the rate to have slowed down to equal urban or even lower in some states due to both lesser earnings as well as heightened pressure on disposable income. M&M, the largest tractor manufacturer in India, reported 16% lower sales in June. In a recent report, ICRA predicted the tractor industry volumes to grow by a modest 2-4% in the current fiscal. The two wheeler sales growth also suffered, with sales in June at around 8.8 lakh remaining flat at same level as previous year. Sales of entry level models like Alto, Wagon R, etc. of market leader Maruti registered 28% y-o-y decline in June, dragging down the overall car sales by 0.54% to 2.2 lakh - the first monthly decline since last October.

With uncertainty in consumption demand revival, plus slow take off in infrastructure and manufacturing sector, reform moves getting stuck in political logjam and no significant improvement in near term global economic outlook, the growth rate of the Indian economy in 2015 as per a recent Reuter poll of 31 economists is expected to be only marginally higher at 7.6% compared to 7.3% in previous year.