New Delhi [India], September 6 (ANI): India is witnessing a phase where consumption is outpacing capex or capital expenditure, a trend which was seen during the pandemic.
According to a report by Nuvama Wealth Management, in the past two quarters, the capex to GDP ratio in India has shown signs of deceleration, while consumption to GDP is picking up, a trend reminiscent of the pre-pandemic era.
India’s capex (capital expenditure) to GDP ratio saw a significant dip during the pandemic years, particularly in FY21, as the economy grappled with widespread disruptions.
However, the nation witnessed a rapid bounce-back in FY23 and FY24, reflecting a recovery driven by increased infrastructure investments and government spending. But, recent data indicates this recovery phase may be tapering off.
According to the report, this shift in economic patterns, with consumption gaining a more prominent role, raises concerns about the long-term buoyancy of the Indian economy. If this trend continues, it could signal a weakening of the robust growth seen during the recovery period, potentially leading to slower economic momentum.
“Over the last two quarters, capex to GDP has been slowing while consumption to GDP has picked up, a pattern that was prevalent pre-pandemic. If this trend continues, it may point toward a loss of buoyancy in the economy,” said the report.
The report also noted that India’s consumption demand, which has been exhibiting a K-shaped recovery, has been well-documented.
It highlighted that the divergence in the consumption pattern in recent quarters is particularly noticeable in vehicle sales, where SUVs and passenger vehicles (PVs) saw strong demand growth. This demand surge helped push GST collections to grow at a pace much faster than nominal GDP (NGDP). However, recent data shows a significant slowdown in PV sales, with GST collections also slipping below the 10 per cent growth mark.
“This was most clearly visible in SUV/PV sales but also seen in a host of other consumption segments. This was one of the reasons why GST was growing much faster than NGDP,” the report added.
This emerging trend suggests that while consumption remains strong in certain segments, the overall economic landscape may face headwinds. (ANI)
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