Consumer spending to return to growth in 2021

New Delhi: After a Covid-19 pandemic-led contraction in consumer spending in 2020, household spending will return to growth in 2021, expanding by as much as 6.6 per cent, Fitch Solutions said on Monday.

Consumer spending is forecast to have contracted by 12.6 per cent in 2020. "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."

Fitch Solutions forecast a return to pre-Covid-19 levels only over the second half of 2021 and 2022. "We forecast household spending in India to return to growth in 2021 after the Covid-19 pandemic led to a contraction in consumer spending in 2020," it said.

In nominal terms, total household spending will only be 1.2 per cent higher than what it was in 2019 (Rs 123 lakh crore in 2021, compared to Rs 121.6 lakh crore in 2019), indicating the extent of the impact that the Covid-19 pandemic has had on consumer spending. Fitch Solutions said all of the main consumer spending categories will return to positive growth in 2021.

However economic impact of 2020 has created a significant base effect across a number of categories. Food and non-alcoholic drink spending were prioritised in household budgets in 2020 and so growth in spending of these items, while remaining positive, will be slightly lower than in 2020.