Can festive spending jumpstart India’s slowing economy?

India’s economic pulse has slowed just as the festive season approaches, leaving experts to wonder if this annual shopping frenzy can breathe new life into a cooling economy.
For months, the country experienced strong momentum, but recent data has painted a more subdued picture. Manufacturing activity has dropped, GST collections have lost steam, and domestic car sales continue to skid.
Yet, there’s still a glimmer of hope that the festival season’s spending spree will offset the slowdown and spark a much-needed recovery.
The dip became clearer in September when GST collections rose by a modest 6.5%, far below the double-digit growth seen earlier in the fiscal year.
Manufacturing followed suit, with the Purchasing Managers’ Index (PMI) hitting an eight-month low of 56.5.
It was the third straight month of declining car sales, despite dealerships rolling out deep discounts.
Even power consumption, often a good measure of industrial activity, barely budged, up just 0.6% from the previous year.
Pranjul Bhandari, Chief India Economist at HSBC, highlighted how the manufacturing sector’s momentum had significantly weakened after a strong summer. Core infrastructure industries also felt the chill, contracting by 1.8% in August, the first such decline in four years.
Despite these challenges, the slowdown might be short-lived. Economists are optimistic, citing a favorable monsoon and the upcoming festival period as key drivers for a potential rebound.
Madan Sabnavis, Chief Economist at Bank of Baroda, told The Economic Times that rural demand is expected to pick up in the second half of the year, boosting overall consumption.
He remains confident that India is still on track for more than 7% growth, with consumer goods looking particularly strong.
It is worth noting that the India Meteorological Department reported 7.6% more rainfall than usual during the June-September monsoon season, which has been a boon for agriculture but may have dampened other sectors.
Aditi Nayar, Chief Economist at Icra, noted that the heavy rainfall could be behind September’s lower GST collections. However, she remains hopeful, predicting that the festive season will drive higher volumes and stronger revenue collections.
Sonal Badhan, Economist at Bank of Baroda, echoed these sentiments. She noted that several international organisations, including Moody’s and S&P, have revised their India GDP forecasts upward, with Moody’s now expecting 7.2% growth for the current fiscal year.
“Festive demand will also help sustain the current momentum. Urban demand, reflected in air passenger movement (~97.5mn in Q2FY25 versus 99.8mn in Q1) and services PMI (60 in Q2 versus 60.5 in Q1) are also holding ground. We are thus more optimistic than most organisations on FY25 growth (7.3-7.4%),” she added.
The festive season is traditionally a time for indulgence, and this year is no different.
Local Circles conducted a survey that revealed urban households are expected to spend around Rs 1.85 lakh corer during the 2024 festivities. There’s a strong interest in home decor, beauty, and fashion, and although e-commerce has grown, 70% of urban households still prefer in-store shopping.
Luxury spending is also on the rise, with consumers ready to splurge on high-end brands and experiences. From vacations to premium products, this shift toward discretionary spending is a sign that consumer confidence is making a comeback.
The automotive sector is particularly hopeful for a turnaround. With Navaratri, Dussehra, and Diwali around the corner, automakers are banking on this festive period to reverse recent trends. T
ata Motors and Maruti Suzuki are already seeing an uptick in bookings, and significant discounts, coupled with attractive financing options, are expected to drive demand.
Even luxury car manufacturers are anticipating a strong season, as wealthy consumers look to treat themselves during the festivities.
The big question is whether the festive cheer can truly jumpstart the economy. Private consumption, which makes up nearly 60% of India’s GDP, is crucial for sustained growth, and the upcoming months will be telling.
While recent figures show a slowdown, the festival season presents an opportunity for sectors like retail, automobiles, and consumer goods to bounce back.
If rural and urban consumers loosen their purse strings, this season of celebration could do more than just spread joy—it might also steer the economy toward a much-needed recovery.