High inflation, increasing unemployment threaten retail spending in India, says GlobalData

India recorded a 11-year high wholesale price index (WPI) in April 2021 due to the rise in prices of oil, manufactured goods, minerals, and food products such as eggs and meat. As the country continues to reel under the second wave of the COVID-19 pandemic, the unemployment rate shot up by 8% in April (up by 1.5 ppts from March) causing 3.4 million salaried employees to lose their jobs. In general, 84%* of the consumers in India are still extremely/quite concerned about the impact of COVID-19 pandemic in general, according to a survey by GlobalData, a leading data and analytics company.

Ankita Roy, Retail Analyst at GlobalData, comments: “The heightened inflation rate along with an equally high unemployment rate is weakening consumer sentiment and affecting their purchasing power. If the current situation continues or further worsens, India will fail to meet its nominal GDP growth projection of 10.1% in 2021.”

The Indian Rupee also depreciated to 75.35 against the US dollar in April 2021 from 72.35 in March 2021 due to a surge in infection rate, restrictions on businesses and mobility.

Ms Roy adds: “While weakened currency boosts exports, it simultaneously increases the price of raw material imports, thereby adding to the price of end products, which is borne by financially strained consumers. This further adds to the worsening of domestic sentiment in India.”

Meanwhile, effective vaccine rollouts and trade diversification led to the revival of economy and infused a sense of optimism in commodity markets such as the US and China, thereby resulting in soaring commodity prices. This along with the weakened Indian currency has significantly increased landed cost and import prices, thus placing downward pressure on India’s economy.

Ms Roy concludes: “Despite increase in WPI inflation, surprisingly retail inflation fell to 4.29% in April from 5.52% in March 2021. However, if the situation persists, retail inflation is also likely to go up due to supply-side disruptions, costly imports, and high landed costs. According to GlobalData, retail sales are expected to grow by 13.6% in 2021. However, lockdowns, low propensity to spend on discretionary products and an anticipation of the third wave of the pandemic are set to dampen the retail outlook in the country.”

*Data taken from GlobalData’s Q1 survey of 500 nationally representative Indian consumers, aged 16+ conducted in February 2021.

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