Household consumption may take a year or two to become ‘normal’: BCG

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With household consumption expected to be negatively impacted over 2020 and 2021, and Indian consumers stepping up focus on functional instead of discretionary purchases and savings, the Covid-19 pandemic has dramatically altered the “plot of India’s consumption story.”

Over the last decade, India’s increasingly upwardly mobile consumers fuelled the household consumption, which grew 13 per cent year-on-year to reach ₹120 trillion in 2019. However, the Covid-19 pandemic has altered this consumption growth story with both access linked constraints and income uncertainty, negatively impacting household consumption.

According to management consulting firm, the Boston Consulting Group (BCG), household consumption will remain negatively impacted over 2020 and 2021 and is likely to reach ₹290-300 trillion by 2030. But this means that the overall consumption growth is likely to be delayed by up to two years.

“Average annual household income expected to rise to around ₹7.3 lakh by 2030 – nearly 40 per cent higher than it is today but 7-8 per cent lower than pre-Covid estimates,” the report added.

Abheek Singhi, Managing Director & Senior Partner, The Boston Consulting Group, India said, “Consumption has been significantly impacted in the very near term and is expected decline by 10-12 per cent 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-Covidtrajectory. Post that, four fundamental growth drivers (affluence, awareness, attitude and access) will drive nominal consumption growth at a steady rate of about 11 per cent up to 2030.”

Recovery trends

Though rural consumption has been relatively resilient in pandemic times, it is unlikely to sustain in the long term. Instead the contribution of tier 2, 3 and 4 towns in India’s overall consumption spending is likely to increase. At the same time, categories that are essential are likely to see better recovery trends compared to categories led by discretionary spends as functional triggers in shopping will become more important for consumers.

“Price will continue to hold sway in most categories; except food/health related where brand consciousness and loyalty likely to increase. Online media likely to emerge as the single largest source of influence across multiple categories and there will be accelerated shift towards online channels of purchase across categories,” the report noted.

Since February, consumers have stepped up their focus on savings due to limited mobility and lesser avenues for spends. “However, we expect this to be a short-term phenomenon rather than a secular trend. Real estate and gold have been the preferred forms of savings for Indian consumers,” the BCG report noted.

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