The Indian Consumption Story backed by 1 Billion Population recorded a 260bps deceleration in FY12, the obvious worry is that the Indian consumer is cracking.
Historical Data suggests that the big drops in consumption growth rates in India are driven by a meaningful slowdown in ‘food consumption’ growth, which in turn occurs owing to high food inflation in the previous years. Given the high food inflation in FY11, the drop in consumption growth in FY12 too is likely to have been primarily driven by slower food consumption growth.
What about Non-food’ consumption growth ?
Whilst food consumption is likely to come under further pressure, we expect the multi-decadal resilience of non-food consumption to persist in FY13.
Furthermore, history suggests that the years that experience sub-normal monsoons as a follow-on to having received above normal-monsoons in the previous year, typically record healthy consumption growth rates. Sub-normal monsoons typically dent consumption growth in a meaningful way only when a sub-normal monsoon recurs for two or more consecutive years.
With GDP Growth moderating to 6.5%, a sensitivity analysis that plugs in a range of hypothetical GDP growth rates into our model suggests that consumption growth in FY13 is unlikely to dip below 5%.
