Consumer confidence at 3-year low, especially in rural areas due to farm prices collapse—will hit consumption
Most commentators have explained the big loss in economic momentum in the April-June quarter by talking of the pre-GST destocking, as also the lagged effects of demonetisation; GDP growth in Q1FY18 came in at a three-year low of 5.7% y-o-y, driven down by manufacturing which clocked a frightening five-year low of 1.2% y-o-y. With the GST impact likely to be over with re-stocking taking place in the current quarter, most are looking at growth picking up over the next few quarters. Crisil, for instance, is looking at GDP growth of 7% in FY18 as compared to 7.1% in FY17, with manufacturing growth at a healthy 7.6% in FY18, though lower than FY17’s 7.9%. Agriculture, in this scheme of things, is projected to grow at 3% in FY18 as compared to 4.9% in FY17—the high base, however, means even a 3% growth is quite good.
What is worrying, however, is the collapse in agriculture GVA in the first quarter despite the reasonable rabi output, and the implications of this for both agriculture growth for the full year as well as for overall consumer demand, the main driver of GDP growth for several quarters. Agriculture GVA collapsed to 0.3% in Q1FY18, after growing at an average of 8% in the two quarters before this, thanks to a collapse in prices following a bumper crop. Combine this with the fact that consumer confidence is at a three-year low (RBI survey) and the fact that rural confidence has fallen the fastest (BSE-CMIE survey)—in other words, it is not clear if consumer demand can continue to grow at a robust pace as in the past; private consumption, as our page one story today shows, has been slowing for two quarters already.