Context:
The Economic Survey 2024-25 throws up contrasting trends in private consumption expenditure with rural demand showing robust growth while urban demand presents mixed signals.
Growth in Rural Consumption
- Private Final Consumption Expenditure (PFCE) grew by 6.7% YoY in the first half of FY25, with rural demand significantly contributing to this rise.
- Sales of two-wheelers, three-wheelers, and tractors point to an uptick in rural consumption, reflecting an increase in rural household expenditure.
- According to Nabard’s Rural Economic Conditions and Sentiments Survey, 78.5% of rural households reported increased consumption expenditure in 2024.
- The momentum from rural demand is expected to continue in the second half of the year due to bumper kharif crops and higher MSPs for rabi crops.
Mixed Signals from Urban Demand
- Urban consumption shows slower growth in some sectors:
- Passenger vehicle sales grew by just 4.2% from April-November 2024, down from 9.2% in the previous year.
- FMCG sales in urban areas recorded moderate growth in FY25’s first half.
- Air passenger traffic showed a steady growth rate of 7.7% during the same period, hinting at resilience in travel.
- Urban growth is moderating, with financial pressure particularly felt in the middle-income households in urban centers.
Narrowing Urban-Rural Consumption Gap
- The Household Consumption Expenditure Survey 2023-24 reveals a declining gap in consumption expenditure between urban and rural areas:
- The average monthly per capita expenditure (MPCE) for rural India stood at ₹4,122, while for urban India, it was ₹6,996.
- Adjusting for social welfare benefits, rural MPCE rises to ₹4,247, and urban MPCE to ₹7,078.
- The urban-rural consumption gap has decreased from 84% in 2011-12 to 70% in 2023-24, reflecting sustained consumption growth in rural areas.
Growth Projections for FY25
- Private final consumption expenditure (at constant prices) is projected to grow by 7.3% in FY25, with rural demand playing a central role.
- PFCE’s share of GDP is expected to increase from 60.3% in FY24 to 61.8% in FY25, marking the highest share since FY03.
Investment and Economic Outlook
- The Economic Survey indicates that the slowdown in investment is temporary, with early signs of recovery already visible.
- Capital formation is expected to rise, with the Union government’s capital expenditure up by 8.2% between July and November 2024.
- Private sector investment commitments increased to ₹2.45 trillion for FY25, up from ₹1.6 trillion in FY24.
