Urban demand in India is stabilising rather than slowing, several economists said, explaining the recent growth moderation in car and packaged-goods sales as expected adjustments after ‘revenge-shopping’ through the months immediately following Covid-induced shutdowns had caused a consumption boom.
Manufacturers have flagged the sales-chart moderations for passenger vehicles and fast-moving consumer goods to voice concerns about potential demand contraction in the cities. But Sakshi Gupta, principal economist, HDFC Bank, said purchases are now beginning to return to normal trendlines after the unusual post-Covid boom.
“Urban demand is stabilising from those highs and that will continue,” Gupta said. This moderation, Standard Chartered Bank senior economist Anubhuti Sahay said, reflects the twin effects of normalisation in demand and a cyclical slowdown. Official data showed the industrial production average growth fell to 2.6 per cent in Q2 from 5.4 per cent in Q1. Some high-frequency indicators also indicate some moderation. The Purchasing Managers Index (PMI) for manufacturing and services averaged lower in Q2 than Q1.
The economy is projected to expand 6.8 per cent in FY25, showed an ET poll of 17 economists. The Reserve Bank of India (RBI) has forecast an expansion rate of 7.2 per cent in FY25, slower than 8.2 per cent in FY24.
Manufacturing goods did well post Covid due to the pent-up demand, said Madan Sabnavis, chief economist, Bank of Baroda. But the recent moderation is more visible in manufactured goods than in outdoor services that also had been a casualty through Covid lockdowns.
“For entertainment, hotels, and tourism, demand continues to remain buoyant,” Sabnavis said.
Still, there are layers in urban demand, and is not the story of a homogeneous slowdown, HDFC Bank’s Gupta said. Luxury car sales, albeit on a smaller base, have outpaced the demand for mid-segment cars, while the premium housing market has outperformed the affordable home sector, she said.
“Middle-class demand has been squeezed by inflation, while the premium segment continues to perform well,” said Sabnavis.
