Festive Season Litmus Test: What Payment Indicators Are Telling Us About Spending

As the Indian economy continues down the path to recovery, did festive spending live up to expectations? Digital payments data suggests so.

Select payment indicators — wholesale and retail — continued to rise in the run up to Diwali eve, indicating a rise in spending, showed data collated by BloombergQuint. Transactions through National Electronic Funds Transfer and through Immediate Payment Service saw the fastest pace of growth since April this year. Spending on debit and credit cards rose and cash withdrawals from ATMs picked up too.

Daily averages were used to gauge the pace of festive spending, leading up to Diwali day on Nov. 5, 2021. The daily average is found by calculating the sum of transactions through the month, divided by the number of days in that month.

• Transactions through NEFT rose 23% in the first five days of the month on an average annually, from 10.8% in October.

• Payments by the IMPS rose 62% on an average in the same duration, after rising 35% last month.

• Unified Payments Interface payments rose 133% up to Nov. 5, 2021 on an average over a year ago, after rising 100% for the full month of October.

• Debit card transactions on an average rose 8% up to Nov. 5 over a year ago, compared with a decline of 11% in October.

• Credit card transactions rose 31% up to Nov. 5 on an average annually, after a rise of 18% in the previous month.

The festive mood was palpable this year.

According to Praveen Khandelwal, secretary general at the Confederation of All India Traders, Diwali business sales were estimated at Rs 1.25 lakh crore — a decadal high. This estimate is inclusive of sales of consumer durables, non-durables and gold and silverware.

The above quoted sales figure indicates a rise of 75% on annual basis and well above the general run-rate of around 20% growth, a note from the association said. Much of these sales recorded in consumer non-durables and gold jewellery segment, the note said. In October, too, online festival-related sales were healthy, rising 23% annually during the first week of the festival, with sales mostly of smartphones, TVs and other appliances, the note said.

Enthusiastic traders are now set for the forthcoming wedding season that begins from mid-November, Khandelwal said.

According to the festive shopping index published on Oct. 26, 2021 by the Retailers Association of India and LitmusWorld, 94% of respondents were excited to shop during the ongoing festive season compared with 80% last year. The index is an annual survey that captures consumer sentiment on aspects that influence purchase decisions during the festive season.

"There has been a pent-up demand with the Indian consumer waiting to celebrate festivals in the post-pandemic world," Khushaal Talreja, head of marketing at LitmusWorld, said. This has triggered the revival of a very positive festive shopping sentiment. The index has also shown a significant upsurge in the share of wallet for high-value purchases across categories, he said.

Tracking Key Payment Indicators

Payments data represent a unique source of tracing underlying economic activity, given their crucial role in undertaking and settling transactions in a market economy, the central bank had said in a recent study.

A preliminary analysis by the central bank found that among the various modes of digital retail payments, the volume of transactions through ATMs, credit cards and debit cards, has a high correlation of 0.95 with GDP.

In the current period, most retail payment instruments showed traction individually and collectively.

Transfers through UPI breached $100 billion (Rs 7.7 lakh crore) by value in October for the first time, according to data released by the National Payments Corporation of India.

On a seven-day moving average basis, transactions through UPI saw a sharp rise towards the end of October, before modestly easing to Rs 29,435 crore on Diwali eve.

Between mid-October and Diwali, UPI transfers rose 3% in a 20-day period compared to the same number of preceding days.

Like in case of UPI, payments by credit and debit cards, too, saw a strong rise towards the end of October, before a moderate decline in November.

Payments by credit cards rose 6.2% from the 20-day period between mid-October to Nov. 5, compared to the same number of preceding days. Payments by debit cards rose 6.3% in the same duration.

Cash Withdrawals From ATMs

On a seven-day moving average basis, cash withdrawals through National Financial Switch ATM network were at Rs 6,203 crore on Nov. 5, while cash withdrawals through Aadhaar-Enabled Payment System continued to rise to Rs 1,050 crore.

Withdrawals made through the NFS ATM network rose 0.9% over the 20-day period between mid-October and Nov. 5, compared to the same number of preceding days.

AePS withdrawals through micro-ATMs and banking correspondents rose 3% in the same duration.

Not Just Digital, Cash Too Continues Its Climb

Currency in circulation rose 0.9% for the week ended Oct. 29, 2021 on a monthly basis. In comparison, currency in circulation had declined 0.7% for the week ended Oct. 1, 2021.

The pace of pickup in retail appears to mirror the broader economy.

The Nomura India Business Resumption Index inched higher to 105.9, or 5.9 percentage points above the pre-pandemic level, for the week ending November 2021 from 105.3 during the previous week.

Will The Pick Up Sustain?

The upside blip in economic activity will pass after the festive season, Indranil Pan, chief economist at Yes Bank Ltd., said. Whether momentum in spending sustains depends on the income-driven component of demand, he said. While job opportunities have shown strong growth, future spending will be a function of whether these jobs are largely at the higher or lower end of the income scale, he explained.