Consumer spending in India has contracted by 12.6 percent this year due to the Covid-19 pandemic, according to Fitch Solutions. It expects household spending to return to growth in 2021, expanding by as much as 6.6 percent.
“While growth will return to positive in 2021, we do note the recovery will be slower than most countries, as a result of the significant contraction over 2020,” it said. “Unemployment will remain heightened, while the effectiveness of government support measures is questionable.”
The agency forecasts a return to pre-coronavirus levels over the second half of 2021 and 2022.
In nominal terms, total household spending will only be 1.2 percent higher than what it was in 2019, the report says, adding that all of the main consumer spending categories will return to positive growth in 2021.
Fitch, however, points out that the economic impact of 2020 has created a significant base effect across a number of categories. “We forecast food and non-alcoholic drinks spending to grow by 7.9 percent year-on-year in 2021, from the 10.1 percent growth we forecast for 2020,” it said.
Spending in other consumer categories was projected to record significant contractions over 2020 as households cut spending on non-essential items.
The Indian government announced a country-wide lockdown on March 24, which lasted until late May. Since then, localized lockdowns have been used in containment zones. The nation has the second-highest number of Covid-19 infections in the world, reporting over nine million cases and more than 137,000 deaths.
“Our forecasts take into account risks that are highly likely to play out in the short term, such as the easing of government support. However, there are risks to outlook that if they do start to play out will lead to forecast revisions,” Fitch said.
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