Business Today

Uncertain consumer

If you are one of India’s middle class consumers, chances are you are beginning to tighten your pursestrings. After all, we’ve gone from ‘India Unstoppable’ to ‘India Plummeting’ in just a few months.

     Print Edition: July 27, 2008

If you are one of India’s middle class consumers, chances are you are beginning to tighten your pursestrings. After all, we’ve gone from ‘India Unstoppable’ to ‘India Plummeting’ in just a few months. Back in January, things were far from this grim. The Sensex was at nearly 21,000, and the bet was that it would touch 25,000 soon. Yes, subprime was a big concern in the US, and food prices were beginning to climb, as were oil prices.

Yet, India, fuelled by a large domestic population, foreign investment and a resurgent India Inc., seemed immune to the problems plaguing the world’s largest economy. Now, it’s clear that India isn’t so immune. In fact, in some sense—given its vast population of poor— it is more vulnerable. Every time prices of food items like wheat, oils, vegetables and meat go up and incomes don’t, the less affluent have no choice but to either trade down or buy less of these items.

The mall rush: All roads lead to discounters
The mall rush: All roads lead to discounters
What has hit consumers harder this time around is the fact that they are faced with inflation in not one or two items but a variety of them. Take fuel oil, for example.

The government has increased prices of petrol, diesel and LPG and everyone is hurting, but the irony is that the oil marketers are still selling at a loss. Global crude prices show no sign of easing—on the contrary, they continue to climb.

Food prices are going up globally because of various reasons like short supply, diversion of crop to manufacture biofuels, and increased consumption by newly-prosperous nations like China and India. Interest rates are going up because governments around the world are keen to moderate demand as a strategy to ease commodity prices.

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With the result, not only have households had to deal with a sharp drop in the value of their equity investments, but they have also had to fork out more for their loans—be it for their homes or cars. Worse, the days of 25-30 per cent annual hikes in white-collar salaries may be over —at least for now.

Yet, there might be something good that comes out of this painful phase. Marketers, for one, may emerge stronger due to cost cuts and improved productivity.

And given that there are millions of Indians who are still on the fringes of the consumer market, the lessons learnt by marketers in a slowdown like the one we are experiencing may help them penetrate deeper into the consumer pyramid. For now, though, they’ll have to deal with wary consumers.

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