Credit cards slowing down, Rise of offline trade, Recovering FDI & more...
This Week In Data #94
In this edition of This Week In Data we discuss:
Sharp slowdown in payments through credit cards in the last couple of months
Offline spends on credit cards growing faster than online spends
UPI slows down but NEFT now growing faster due to capital markets?
Rural wage growth continues to moderate
Kharif sowing so far has been healthy
FDI flows into India are recovering but the overall picture is still bleak
Overall non-cash payments saw a slowdown in growth in August. Payments grew 16% YoY in August, down from 21.5% growth in July. But the growth was higher than in June. So there is no clear upward or downward trend. The disconcerting trend is in credit card payments which are almost 100% towards end consumption payments (heavily skewed towards urban and discretionary).
Credit card payments (domestic) slowed down sharply in August. Total spending through credit cards grew 13% YoY in August. This is the slowest growth since the pandemic period (early 2021). And so far in September (till 26th) the YoY growth in credit card payments has been 0%! There is a bit of seasonality as Pitru Paksha, a fortnight during which most Hindus stay away from big purchases, fell in September this year while last year it was in October. But still, the deceleration in growth is pretty starkā¦
And interestingly, most of this slowdown has come from slower growth in online payments. Online credit card payments grew a modest 10% YoY, once again the slowest growth since early 2021. More importantly, offline payments have grown faster than online payments for the past 5 consecutive months. In August offline credit payments grew 19% YoY, 10ppt faster than online credit card payments. Is this signaling the revival of offline trade?
UPI is also seeing a slowdown, albeit on a high base. Over the past year, the growth in number of UPI transactions has slowed down from 58% during the September quarter last year to 43% during the September quarter this year. But and this is a real surprise, during this same period, NEFT transactions have seen growth pick up by 10ppt - from 34% last year to 44% this year during the September quarter. NEFT is likely to grow faster than UPI during this quarter in terms of number of transactions!
While UPI is used for small ticket payments (average transaction size for UPI is ~ā¹1,400), NEFT is used for much larger transactions (average transaction size for NEFT is ā¹45,000). Over the past few quarters, while UPI has seen a slowdown, NEFT has seen an uptick. And while NEFT transactions are growing at over 40%, RTGS which is used largely for B2B large ticket payments, continues to see only a modest growth. What gives? Is this growth in NEFT a reflection of strong growth in small businesses in the last few quarters? or does this reflect the growing retail participation in capital markets since most of those payments will be NEFT? Just some conjecturesā¦
Rural wage growth continues to moderate. In July, rural wages for men grew 4.7% YoY, the slowest growth in over two years. Even for women, the average wage rate has decelerated to the lowest in over a year in July. Other markers of the rural economy such as NREGA or Tractor sales have also seen a decline in recent months. So a lot depends on the Kharif harvest which will start hitting the market in the next few weeks.
So far (till 20th September), the total area sown under the Kharif crops has increased by a modest 1.6% YoY. The Pulses crops have seen the biggest increase in acreage (~8% YoY) while Coarse Cereals and Rice have seen a relatively modest 2-3% increase. Among the key Kharif crops, Cotton is the only crop that has seen a decline in acreage and at almost 9% it is a big decline. So barring cotton, the outlook for the Kharif harvest looks positive.
Lastly, FDI flows into India continue to recover from the declines in the previous couple of years. July was the third consecutive month when FDI grew on a YoY basis and cumulatively, in the first 4 months of the current year the Gross FDI inflows into India have totalled US$28bn, up almost 25% YoY.
However, the overseas FDI by Indian businesses has also increased by almost 60% YoY. Repatriation of existing FDI has also increased by 10% YTD and as a consequence, the net FDI received by India (net of repatriation and overseas FDI by Indian companies) has totaled a modest US$5.5bn till July, up less than US$2bn on a YoY basis.
Thatās it for this week. See you next weekā¦