NEW DELHI: India's consumer spending is at its weakest in seven years, global ratings agency Fitch said yesterday, as it cut the outlook for India's vast retail sector from stable to negative.
The announcement was a new blow to the Congress-led government, underscoring the challenges new Finance Minister P. Chidambaram faces in reviving an economy growing at its slowest pace in nearly a decade.
Analysts had been betting on strong retail and financial services sector performances to help power Asia's third-largest economy as India's 1.2 billion people move towards more Western-style consumer spending patterns.
But the slowing economy, due to high borrowing costs and a weak global outlook, have brought "a sustained deterioration in the discretionary spending ability," Fitch said.
India's once-booming economy grew by just 5.3 per cent between January and March - its slowest annual quarterly expansion in nine years.
Fitch yesterday warned spending was unlikely to pick up unless consumer price inflation, now running at over 10pc, comes down significantly and consumers receive a "significant raise in real wages".
Allowing supermarkets such as US giant Wal-Mart to enter India's retail sector could provide retailers easier access to foreign investment and have a "positive impact" on their finances, the agency said.
A study, meanwhile, by Indian industry body FICCI forecast the retail sector will become a $1.3-trillion market by 2020, up from about $500 billion now.