RBI Governor Shaktikanta Das Recently said that the foundation of the Indian economy remains strong. India’s growth rate is among the fastest in the world, retail inflation has moderated, buffer food reserves are plentiful, forex reserves are substantial and the current account deficit is expected to remain well within sustainable levels.

Domestic consumption is making a strong comeback, which has traditionally been one of the main drivers of India’s economic growth. This is good news for businesses of all sizes. Simply put, when consumers spend more, businesses have more capital to invest, and increased liquidity across the system activates complementary sectors and high-end goods and services.

What is the significance of this boom in domestic consumption, understand it in three points?

1. As the festive season is approaching. This number is likely to increase further. Sales of everything from two-wheelers to real estate are usually at their peak between August and November. Indian consumers spend more. The numbers for the next three quarters are likely to be even better, given how fast consumption has recovered.
2. Demand, for better or worse, is driving India’s growth story. In a typical financial year, private expenditure accounts for about 55 percent of the total national GDP. In addition, it has a significant impact on the next major growth driver, gross fixed capital formation (GFCF), which accounts for the money invested by businesses. As a result, strong domestic consumption inadvertently translates into strong economic growth.
3. Rising domestic consumption will drive demand for goods and services across industries, particularly those that involve significant amounts of ‘discretionary’ or luxury spending. The product segments affected by ‘premiumisation’ trends are included in the latter. These include everything from chocolates and alcoholic beverages to laptops and headphones, as well as clothing and cosmetics. In some categories, such as automobiles, the demand for premium products has outpaced the demand for entry-level variants. For example, in FY12, sales of premium cars grew by 38 per cent year-on-year, while sales of low-cost cars grew by only 7 per cent.

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