‘People will cut spending only when there is fear of job loss'

There was deep concern when the Consumer Durable Goods section of the Index of Industrial Production registered a sharp drop in growth in the June quarter. To find out the reasons for this slowdown, we spoke to industry leaders. Below are excerpts from interviews with Dr Y. V. Verma, President of Consumer Electronics and Appliances Manufacturers Association and the Chief Operating Officer of LG Electronics India; and Mr Shantanu Das Gupta, Vice-President, Corporate Affairs and Strategy — Asia South, of Whirlpool of India, to present two differing views on this sector.

With Y.V. Verma

You say rural demand has been quite supportive of sales growth for home appliance makers. What is driving demand from rural regions?

Rising aspiration levels and brand awareness are the main drivers. Ten years back, rural consumers were very price-centric and didn't care for brands. But, now, it is not so. They look for reliable products where the performance is satisfactory and there is after-sales assistance.

The other factor driving demand in rural regions is the financing schemes. There are many lenders who are offering zero interest schemes to woo buyers. In some rural areas, dealers themselves finance customers' purchases as they know them well.

With rising interest rates and inflation going up, do you see any slowdown in demand?

The rising interest rate impacts automobile industry first. We haven't been affected by this. Last month too, our year-on-year growth was pretty good and for the next four five months too, I think it will hold strong because we are entering the festival season. Festival season is basically bonus season.

Unless the economy really slows to the extent that jobs are cut, there will not be a drop in demand.

In earlier occasions too, only there is a fear of losing jobs, people save their bonus. So, I think for at least the next two quarters, there should not be any problem for consumer durable makers.

Inflation is not bothering people. Their aspiration level has improved. Products such as refrigerators, air-conditioners and washing machines have become a necessity more than a luxury.

Penetration levels are low and there is huge opportunity for growth in these segments.

So do you think the market will accept further increases too, if any?

So far, market has absorbed it. But there will come an inflexion point from which demand will start falling. But no one knows when this inflexion point will come.

With Shantanu Das Gupta

What caused sales to drop in the June quarter? Is there a slowdown in demand?

The slowdown in sales is a function of poor demand. Over the last two quarters, we have seen some softening in demand.

This is primarily due to the recent hike in interest rates, the high rate of food inflation and the increase in commodity prices which saw an across-the-board price increase in all consumer items. And, summer was brief this quarter. So, the whole selling period contracted, bringing down the topline. But, we have recorded good growth in washers and microwaves. Our faith in India has not diminished despite theslowdown.

What was the quantum of price hike in the last one year and has this hit your market share?

In the last 12 months, we would have increased prices seven-to-eight times. We did it because the business demanded it. We knew that by pushing up price, our market share may erode slightly; we were willing to take that risk but not compromise entirely on the shape of the business in terms of profitability.

When there were signs of demand slowing down, we can't do much to push sales. So we thought it would be sensible to hold on to profitability by increasing prices.

What will help improve demand ?

If GST comes, it will bring some short-term stimulus by taking off some cascading effects of tax. Also, it will help in the movement of goods. But, more importantly, I think there needs to be something that brings back consumer confidence. The burden that people are facing in the form of higher food inflation has to go.

What are your festival plans?

If the demand is really slow, no amount of advertising will help. We have inventory of television commercials that we haven't aired.

We will do the conventional things but, if you ask me, if I am going to do something over and above normal — no.

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