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MOSL: ECOSCOPE: Rural consumption weakens in 2QFY22; Base effect drives urban consumption growth

ECOSCOPE: Rural consumption weakens in 2QFY22; Base effect drives urban consumption growth

 

• After double-digit average growth in 1HCY21, rural consumption finally lost steam last quarter, declining 2.4% YoY in 3QCY21/2QFY22. As many as 7 of the 11 indicators used to determine the trends in rural consumption contracted in 2QFY22, with double-digit growth in only one indicator – farm credit. The deterioration in farm terms of trade (ToT, with rising input costs and weak output inflation) is the worst in the past quarter of a century.
• In contrast, urban consumption grew 9.5% YoY in 2QFY22, partly offsetting the losses seen in 1HFY21. All seven indicators posted better growth in 2QFY22 vis-à-vis 2QFY21, largely supported by the base effect.
• Overall, after growing at an average of 6% in FY20/FY21, rural consumption grew 1.6% YoY in 1HFY22. In comparison, urban consumption grew at a strong 16% YoY following average decline of 1.1% in the previous two years. Compared with FY19, both rural and urban consumption are up 14%. However, urban consumption was 11% lower v/s the counterfactual scensario (no-COVID trend), while rural consumption was just 3% lower.
• Following these trends, we believe real private consumption growth would also weaken to 8–10% YoY in 2QFY22, following extraordinary growth of 19.3% YoY in 1QFY22. This was clearly indicated in our recently released report on India’s Economic Activity Index () as well.