After reports of unemployment reaching a 3-year high in the month of October, manufacturing activity reaching its seven year low and agricultural produce suffering from erratic rains, a recent report relating to a crucial economic indicator is a cause for worry.

According to a survey conducted by National Statistical Office (NSO), consumer spending declined for the first time in over four decades in 2017-18. The average amount spent by a person in a month fell by 3.7% to Rs 1,446 in 2017-18 from Rs 1,501 in 2011-12.

Consumer spending in rural areas declined by 8.8% in 2017-18 while it rose by 2% in urban areas. People in rural areas spent Rs 580 monthly on food as compared to Rs 643 in 2011-12, whereas on non-food items, there was a decline in spending of 7.6%.

People in urban areas spent Rs 946 monthly on food items in 2017-18, almost similar to Rs 943 in 2011-12. On non-food items, there was an increase of 3.8% over the six year period. The data figures have been adjusted for inflation, keeping 2009-10 as the base year.

This points out to the poor state of the rural economy and muted growth in urban areas.

The survey, however, has been scrapped by the government citing data quality issues. In a statement, the government said “It had decided not to release the results of the survey as there was a significant increase in divergence in not only the levels in the consumption pattern but also the direction of the change when compared to the other administrative data sources like the actual production of goods and services”.

India has recorded significant GDP growth over the survey period, in contrast to the decline in consumer spending. The divergence in data could be because of difference in types of expenditure captured and the method of survey used.

Mr Pronab Sen, Former Chief Statistician of India, while speaking to media said, the National Accounts Statistics (NAS) is usually based on the organised sector data, sourced from the index of industrial production, annual survey of industries and the ministry of corporate affairs. The National sample Survey (NSS), wherein 70 per cent of the sample size is in rural areas, captures the unorganised sector better.

He further added that demonetisation exercise which took place in November 2016, adversely affected the unorganised sector the most, and divergence in the national accounts and the consumer expenditure survey could be more than what was seen in the previous years.

Whether or not the data is credible, the fact remains that economy is going through a slowdown. People are spending their money thoughtfully even on daily essentials like toiletries and biscuits. Various players in the FMCG industry have acknowledged that their businesses continue to face pressure due to sustained weakness in demand, especially from the rural areas.

[Read: Is Your Mutual Fund Portfolio Strategically Placed As The Economy Slows?]

Consumption expenditure accounts for more than 50% of the GDP; and therefore, it is an important determinant of the economy’s health. Without growth in consumer spending, manufacturing activity will continue to be muted, which will reflect on corporate earnings growth.

How do mutual fund houses perceive India’s consumption story?

Mutual fund houses believe that it may be while before material recovery takes place. However they are convinced that FMCG sector will never go out of favour, though the pattern of consumption may be dynamic. They are positive on the long-term outlook of the sector.

Several mutual funds continue to have considerable exposure to companies in FMCG and Consumer Durable segment.

Table: Mutual funds with highest exposure to Consumer Durables and Consumer Non Durables in terms of market value