Opinion This Diwali boost, signs of revival in consumption sentiment

Domestic two-wheeler sales grew 6.7 per cent year-on-year to a record 21.60 lakh units in September. Passenger vehicle sales also hit an all-time high of 3.72 lakh units for the month, even with a lower 4.4 per cent increase. Still more impressive was tractor sales that posted a whopping 45.4 per cent growth to over 1.46 lakh units. Seen together — alongside other indicators such as the value of UPI transactions that were annually up 20.6 per cent for the month — they suggest a revival of consumption sentiment. Some of that might, of course, have to do with the festival season’s early onset. The Navratri period this time began on September 22 and Diwali is on October 20, whereas these fell on October 3 and October 31 last year. The true extent of revival — whether or not it is just a one-off phenomenon — will be known only post-Diwali when the festivities end.

But there are other significant factors too. The most obvious is the goods and services tax (GST) rate cuts — from 28 per cent to 18 per cent on small cars and two-wheelers, and from 12 per cent to 5 per cent on tractors — announced on September 3 and effective from September 22. Coming on top of the Union budget decision exempting individual earning up to Rs 12 lakh annually from paying any income tax, it has put more money in the hands of households. Their ability to spend has been further enhanced by consumer price inflation falling to a 99-month low of 1.5 per cent year-on-year in September and good monsoon rains, which should translate into higher rural incomes. The timing of the GST rate reductions — ahead of the main festival season and on the back of a bountiful monsoon — couldn’t have been better. The Narendra Modi government is clearly betting on a household consumption expenditure recovery offsetting the impact of US President Donald Trump’s prohibitive tariffs on India’s exports.

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This links up to the larger point about the economy’s four growth engines: Household consumption, private investment, government spending and net exports. Out of the four, the second is the one that has been stalled the longest. Without investment, there would be no jobs and incomes that alone can sustain household consumption beyond the festival season. Government spending is constrained by the imperatives of fiscal consolidation and there are limits to how much more heavy-lifting the Centre or indebted states can do. The ongoing geopolitical disruptions have cast a cloud over export prospects too, at least in the short run. All the more reason why the focus of policy must be now on reviving the “animal spirits” of entrepreneurs. Their investing is key to ensuring durable consumption sentiment.