Ikea's Widening Losses, Slow Growth in India Highlight Corporates' Biggest Worry

The fiscal year 2024 marked the slowest year for the retail furniture giant Ikea India’s growth since the company first began operations in the country in 2018. The furniture retailer’s business in India reportedly witnessed the slowest sales expansion in FY24 with only a 5 per cent increase to Rs 1,852 crore in sales compared to 61 per cent to Rs 1,768 crore in FY23.

As per an Economic Times report, the net loss of the company widened by 15 per cent to Rs 1,303 crore in FY24 compared to Rs 1,134 crore in FY23. Although there are company-specific factors for the performance, the results highlighted a trend in consumption which has worried Indian companies over the past year.

Also Read: Can Government Make Indians Spend More to Support India’s Falling Growth Rate?

Slowdown Worries

The investment leaps by the company to expand its business in India might have taken a toll on its growth. However, this is not the only factor behind it. The private consumption slowdown in the country has been a significant factor as to why consumers pulled back on discretionary spending across various lifestyle segments, resulting in slower growth in sales.

In the financial year 2024, private consumption grew by 4.4 per cent which was the slowest pace since fiscal year 2004 barring the pandemic year.

The situation has also worsened for the wider economy in the current fiscal. The GDP growth witnessed a decrease from 6.7 per cent in Q1 to 5.4 per cent in Q2 of FY25. The private final consumption expenditure (PFCE) has come down from 7.4 per cent in Q1 to 6 per cent in Q2 of FY25, according to MoSPI’s Q2 data.

But the impact of the consumption slowdown hasn’t just impacted Ikea India’s business. It has also been seen in bell weather consumer-facing companies of India. The fast-moving consumer goods (FMCG) giant Hindustan Unilever (HUL) reported a 4 per cent dip in its net profit for Q2 FY25 to Rs 2,612 crore compared to Rs 2,717 crore in Q2 FY24.

This was an indication of a wider trend observed in India Inc. in Q2 due to weak consumption and muted government spending. Nearly 22 companies in the Nifty50 index witnessed a decrease in profit estimates in Q2, according to a Bloomberg report.

Another report by market analytics, Crisil, showed that India Inc. might have observed a 16-quarter low revenue growth of around 5-7 per cent in Q2 of FY25.

Also Read: Despite Disappointing Earnings, Government Anticipates Surpassing Direct Tax Target in FY25

Rescue Budget

Now with just a month away from the FY26 budget presentation, the industry is eyeing support from Finance Minister Nirmala Sitharaman.

Earlier, a report by Reuters, citing sources, mentioned that the Indian government is planning to cut income tax for persons earning up to Rs 15 lakh per annum in the upcoming budget. The move is likely to provide ease to the middle class and push consumption.

The Confederation of Indian Industry (CII) in their pre-budget expectation has suggested the finance ministry to focus on boosting private consumption. It has suggested measures including the reduction of excise duty on fuel and increasing consumers’ buying power by cutting down marginal tax rates for personal income for those earning up to Rs 20 lakh per annum.

“Domestic consumption has been critical to India’s growth story, but inflationary pressures have somewhat eroded the purchasing power of consumers. Government interventions could focus on enhancing disposable incomes and stimulating spending to sustain economic momentum,” said Chandrajit Banerjee, Director General at CII.