Saturday, December 9, 2023

Diwali sales a record, cut savings Exports to Germany rise

Shivaji Sarkar

India’s imports are growing, exports are slowing but domestic sales during Deepavali touches a record of Rs 3.75 trillion, according to Confederation of Association of Traders (CAIT). And with some more regional festivities like chhath it may add another Rs 50000 crore sales.
All India Jewellers and Goldsmiths Federation National says that on, Dhanteras, about 41 tonnes of gold and about 400 tonnes of silver jewellery and coins were sold in the country. In value terms, the total turnover of gold, silver and other items was Rs 30,000 crore across the country, he noted.
Even passenger vehicle sales have gone up by about 21 percent on the back of deregistration of fine working personal cars though these don’t add to pollution. Maruti alone is stated to have sold over 55,000 vehicles. So did the tractors, suggesting a new look agriculture.
This is despite the rising food prices posing threat to Reserve Bank of India’s (RBI) commitment to align headline inflation with the 4 percent target as state in it State of the Economy report. Rising food prices pose the sole threat to the Reserve Bank of India’s (RBI’s) commitment to align headline inflation with the 4 per cent target, according to the central bank’s ‘State of the Economy’ report. One particular aspect bothering is the vegetable inflation averaging 5.7 percent from fiscal year 2020 till now (2023) compared to a virtual zero between 2016 to 2019. Occasional rises have been much higher.
While this phenomenon along with some external developments are pushing the rupee down vis a vis dollar, has added to another problem of shrinking goods exports for the seventh time in August while imports surged to hit the highest level since March this year. At $ 58.6 billion imports were 5.2 percent below last year’s level but exports fell higher by 6.9 percent leading to $ 24.2 billion trade deficit, the widest since October 2022.
In September, imports at $ 68.75 billion, less than $ 79.64 billion a year back and were again higher than exports at $ 63.84 billion against $ 64.61 billion the previous year.
But India may be doing better in individual country terms. A German government report says, a rapidly growing India became more important for Germany. Goods to the value of 8.7 billion euros, 1.7 percent higher were imported from India to Germany from January to July 2023. Accounting for 1.1 percent of total imports, India ranked 23rd among Germany’s major suppliers of goods. Among the non-EU countries, India ranked ninth. Goods exports are down 11.9 percent and imports dipped by 12.1 percent. In short, it affects foreign currency earning, which remains at a level of Rs 83 or below. This makes imports more expensive and that pushes up the inflation RBI struggles to keep in check.
Services exports and imports too were hit. In September, services exports witnessed a year-on-year decline of 2.7 percent at $ 28.42 billion, Simultaneously, services imports decreased by a sharper 10.3 percent at $ 14.59 billion. This is an indication of the economy at the domestic front. It means the overall activities in the economic sector is coming down. Shrinking services exports imply that their ability to bridge the goods trade deficits that were significant last year, will be restricted. This could lead to wider current account deficits.
It can impinge on the budgetary process that begins at this point of time. This will be significant for an election year provisional central budget. The 2023-24 budget allocated, like the previous year, higher infrastructure expenditure hoping faster growth. It will be challenging for the economy. Not all expenses may be justified like demolitions of many office buildings, which could have stood the test of time. World over traditionally such buildings are refurbished and maintained instead of demolitions. Iconic structures like National Museum are also being axed. These add antiquity value to historic cities.
It appears that the domestic purchasers would be greasing the economy instead of external sales. This year’s domestic figure at Rs 3.75 trillion is far higher that the retail business of Deepavali 2022 at Rs 1.5 trillion. Gold sales spiked by 20 percent almost like the last year.
The peculiar factors of the economy need to be decoded. Festivity sales are rising every year despite the rise in inflation and moderate job scenario. This year overall many farmers dealing in potato and other vegetables had less income even as onion, tomatoes, cereals, and pulses prices surged. The RBI is watching keenly the November and December market trends.
Despite inflationary situation the rise of sales of goods and commodities suggest that even the not so affluent keep the wheels of economy moving. Festive sales are seasonal but whether such trends would sustain the economy or not is yet to be proven. This definitely gives a boost to the entire economic sector, including the travel, transport and hotels. Large movements generate enormous opportunities.
An increase in inflation rate leads to a decrease in the household consumption as per the traditional theory. How the festive sales surge remains to be unfolded. The credit card sales have also gone up 17 percent in October and a bit more in November. Overall estimates show credit card sales of Rs 29,000 crore. There is a catch. It may be part of the total purchases by the consumers. But the sales surge also has another blue. It has been observed that credit card defaults too increased.
It has been observed that from around 70 percent as a share of GDP, the share of private consumption expenditure (PFCE) has gone down to 58.5 percent. Aniket Dani, director, research, CRISIL Market Intelligence says the self-employed witnessed degrowth of 3 percent in their income during the last one year. Inflation during this period remained at 6 percent, suggesting loss in income. The low-income group bore the brunt.
The growth in sales may not encompass all sections. At the macro level slowdown is evident. Nikhil Gupta, chief economist, Motiwal Oswal Financial Services says that when saving continue to fall, income growth lags consumption growth.
So all that glitters may not be gold. Diwali sales may have boosted a large part of the market but its general impact on the economy is yet to be observed.


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