India's economy gets boost from spending splurge during festive season

Consumption likely also to get a boost from Cricket World Cup and coming wedding season

A woman has her hands decorated with henna on the eve of the Hindu festival of Karva Chauth in Amritsar. India’s festive season usually runs for several weeks. AFP

India’s festive season spending is booming as consumers splurge on cars, smartphones and TVs, buoying growth in one of the world’s fastest-expanding economies.

Sales at online platforms like Amazon and Walmart-owned Flipkart was up by almost a fifth in the first week of the festive sales from a year ago. Digital transactions recorded by Unified Payments Interface surged about 40 per cent in October from a year earlier.

India’s festive season usually runs for several weeks until the Hindu religious holiday of Diwali – which takes place on November 12 this year – with millions of Indians often bingeing on food, gifts and home improvements. The sales are a key indicator of the health of consumption, which makes up about 60 per cent of India’s gross domestic product.

Economists point to an easing in inflation and a pick-up in wages, especially in rural areas, where a majority of India’s population lives.

Consumer confidence reached a four-year high in September, the latest central bank figures show, while demand for bank loans is hovering near a 12-year high despite interest rate increases this year.

Reserve Bank of India Governor Shaktikanta Das is already signalling stronger growth. He told a banking conference on Tuesday that GDP figures for the July-September quarter, which are due to be released on November 30, will “surprise on the upside”.

Ahead of elections next year, Prime Minister Narendra Modi’s government is focusing on farmers with higher guaranteed prices on some crops and lower cooking gas costs. That is helping to lift sentiment in the sector, too.

“Both urban and rural consumption are entering the festive season on a much stronger footing,” Yuvika Singhal and Vivek Kumar, economists at Quanteco Research, wrote in a report last week.

Stronger spending is helping to drive manufacturing activity in Asia’s third-largest economy and underpinning growth of more than 6 per cent in the current fiscal year that ends in March. The International Monetary Fund predicts India’s economy will grow 6.3 per cent in both 2023 and 2024 – the fastest pace among major economies.

Consumer businesses are reporting stronger sales, while banks like Axis Bank are betting on a pick-up in business momentum in the next few months. Reliance Retail said in a statement last week that it saw “strong shopping” during recent festivals.

On top of the festive period, consumption is also likely to get a boost from the Cricket World Cup and the coming wedding season.

Spectators at the ICC Men's Cricket World Cup India 2023 match between India and Bangladesh at MCA International Stadium in Pune. Getty Images

The cricket tournament is being hosted in cities across India until November 19, with some economists estimating it could add $2.6 billion to the economy as fans spend on travel and eating out.

The Confederation of All India Traders, the country’s largest traders group, expects the wedding season, which runs from November 23 to December 15, will result in $50 billion of spending on items like gold jewellery, clothing and other consumer goods.

“The festive season is expected to be followed by a robust wedding period, both of which combined should support near-term growth,” Teresa John, an economist at Nirmal Bang Institutional Equities, said last week.

“Easy availability of credit and expectations of cooling inflation should also aid a gradual recovery in discretionary spending particularly in the mass market.”

Online sales from Amazon, Flipkart and others reached 47 billion Indian rupees ($565 million) in the week through October 15, consulting firm RedSeer said in a report. Mobile phones, electronic goods and large appliances drove about 67 per cent of the sales, it said.

UPI, which records real-time digital payments, processed transactions worth 16.46 trillion rupees from October 1-30, an increase of more than 40 per cent from a year earlier. Credit card payments jumped 16 per cent to 1.42 trillion rupees in September, data from the Reserve Bank of India shows.

Other high frequency indicators paint a similar picture of strong consumption.

Goods and services tax collection rose 10 per cent from a year earlier to 1.6 trillion rupees in September.

Peak electricity demand, a key barometer for activity in industrial and manufacturing sectors, surged to an all-time high of 240 gigawatts in September, topping the government's forecasts.

Factory floors are also buzzing, with manufacturers adding more capacity to keep up with the strong demand.

“We have healthy orders across most of the verticals led by mobile phones, LED televisions and washing machines,” Saurabh Gupta, chief financial officer at Dixon Technologies, one of the country’s largest contract manufacturers, said earlier this month.

Dixon had introduced several shifts across the majority of its 20 factories to meet orders.