There has been a clear change in the consumer spending pattern in India, with various socio-economic classes (SECs) responding differently. While SEC A has been more affected and has changed its behaviour in categories like financial planning, holidaying, luxury, jewellery, etc, these areas were found to be the least affected in SEC B. For this section, the big impact was in the spend pattern in categories like telecom, food & beverages, consumer durables and healthcare. Another change across classes is downgrading in certain categories, opting for unbranded apparel, postponing decisions about buying high-value items, etc.
This difference is because the factors vary greatly for both sets. For SEC A, the major factors influencing their behaviour is uncertainty about the future, apprehensions about lay-offs, pay cuts, no increments for the salaried class, and low collection of outstandings for the business class. For SEC B, there is no such thing as slowdown. For them, the issue is inflation, it's mehngai.
Even within the same economic class, consumers with varying profiles react differently to the uncertainty of future earnings. For example, housewives who look after day-today spending have found ways to cut down on household spending. Similarly, students who depend on pocket money or part-time jobs for their discretionary spends have cut down on the frequency of eating out as both the sources of income have come under strain.
To have an idea about how the urban middle class has been reacting to this financial insecurity, look at the manner in which airlines, financial services and consumer durable industries have fared in the past few months. People cut down on air travel, stopped investing in stocks and mutual funds and postponed buying refrigerators and television sets. However, that was in November-December last year and most sectors have gradually improved since then. But as the financial sector is still feeling the pinch, the average investor prefers to keep cash and is looking for safer options, not just in terms of investments but also among service providers. Some prefer to deal more with PSU banks than the private ones. Putting money in systematic investment plans of mutual funds and in insurance, as well as discretionary spends on durables, vehicles and jewellery have been affected the most. With the stock markets still volatile and polls around the corner, investments may continue to be hit for some time.
When it comes to spending, most of the cuts have taken place in the discretionary category, not in necessities. Most consumers have started downgrading; that is, instead of a premium, branded product, they are looking for cheaper, even unbranded, alternatives.
Nikhil Rangnekar is Executive Director (India-West), Starcom Worldwide
