Urban Consumption Continues To Remain Weak

Urban consumption has suffered massively and remains weak, broking firm Motilal Oswal has said in its latest report, Ecoscope.

The broking firm prepared a rural consumption index using 10 monthly data indicators, and used 9 other indicators to prepare a similar index for urban consumption in the country.

"A simple average of all 9 indicators suggest that while rural consumption declined only 4 per cent, year-on-year in 1QFY21, the contraction in urban consumption was severe at 34 per cent year-on-year . It is important to note that urban consumption had started weakening before COVID-19.

Based on all the 9 proxy indicators, urban consumption has actually declined 0.6% YoY in FY20, marking the first contraction during the past two decades," a Motilal Oswal report has stated.

According to it, urban consumption growth had never moderated to below 5% in any year in the 21st century.

"An analysis of urban consumption during the past two decades suggests that while the urban sector was strong at the turn of the century (with an average growth of 11%), it also had a dream run during FY04-08 (average growth of 18%).

Growth in urban consumption was the weakest during FY13-14 at 5.2% each, which picked up again to an average of 9% during FY15-19. If we look at monthly/quarterly data, we notice that falling passenger vehicle sales, weak air passenger traffic and declining production of consumer durable goods along with weak imports of non-farm consumer goods had led to the sharp and sudden deterioration in urban consumption in FY 2020", the broking house has stated.