Advertisements for a Hennes & Mauritz (H&M) store are displayed in the Select Citywalk mall in the Saket area of New Delhi last month. Consumers in India - now the fastest-growing big economy - are the world’s most confident, according to Nielsen.

Bloomberg
Mumbai

As China champions a transformation in its economy toward domestic demand, it could do with the type of sentiment burst that its biggest neighbour is now enjoying.
Consumers in India - now the fastest-growing big economy - are the world’s most confident, according to Nielsen. Surging personal wealth is pushing an unprecedented number of Indians to tour the globe, and companies are offering ever more exclusive attractions such as homes sold “by invitation only.” Indians are also taking on more credit, helping to bolster spending power as the festival season approaches.
Higher consumption in a retail sector that accounts for about half the economy will help Prime Minister Narendra Modi get companies to invest more and create jobs for a burgeoning population. Spending could rise further following four interest rate cuts and a scheduled pay hike for state employees.
“Consumption will provide a kick-start,” said Devendra Kumar Pant, chief economist at New Delhi-based India Ratings and Research, the local unit of Fitch Ratings. “This will lead to higher demand that will boost capacity utilization,” and eventually push companies to expand, he said.
The continuing challenge of a global economic slowdown means it will take time to use up India’s manufacturing slack - about 1.5 years until capacity utilisation reaches around 85%, Pant said, from 71.5% now. Price competition means it may take time for consumption gains to be reflected on corporate balance sheets, he added.
Cheaper fuel amid a global commodity slump and sliding inflation has left more cash in the hands of consumers. As average household incomes triple to $18,448 over the decade through 2020, India’s retail sales will double from current levels to $1tn, the Boston Consulting Group estimated in a February report.
India’s benchmark equity index rallied 27% in dollar terms last year following the election of the most stable government since 1984. That was one of the top five performances among more than 90 indexes tracked by Bloomberg. Rupee bonds have earned investors 11.4% over the past 12 months, the highest in Asia.
The number of rich Indians rose a world-beating 26% in 2014, according to a report from Cap Gemini and RBC Wealth Management. They also borrow a lot - second only compared with their peers in the Netherlands - and among their baubles are homes in gated communities they can buy only if invited to.
“The market for ultra-exclusive, ‘by invitation only’ homes may be small, but it is growing,” Ashwinder Raj Singh, chief executive officer for residential services at Jones Lang LaSalle India, wrote in a September report.
It’s too early to reach a conclusion on whether the consumption surge will be sustainable, said Rupa Rege Nitsure, chief economist at L&T Financial Services Ltd. Credit going toward durable consumer products such as TVs and smartphones remain far from their peak levels - while picking up for the Diwali-to-Christmas festival season, she said. Loan-growth numbers also are flattered by lower levels from last year.
In rural areas - which still make up most of the population - spending could be impaired by below-average monsoon rains that have hurt agriculture.
“The state of the economy, deficit monsoons and volatility in the job market are prevailing issues,” Roosevelt D’Souza, senior vice president for Nielsen India Region, said in the November 3 report. “That said, the belief in the fundamental prospects of India’s economic future appear unshaken and the proportion of consumers who see brighter days ahead are growing.”