Comments
Slowing GDP growth, a poor monsoon and sustained inflationary pressure could well provide the catalysts to temporarily reverse the virtuous consumption cycle that India has benefited from in the past decade, according to a survey.
The job situation too is not good. The waiting period to find a job has increased from two-three months to nine-10 months, with people ready to settle for relatively junior positions. The rate of growth in new hires in CY12 is much lower, while the new working age population is finding it increasingly difficult to get appropriate jobs, another survey has shown.
Several surveys by members of the Apex Chamber of Commerce and Industry, FICCI and Assocham have underscored waning consumer confidence. The lack of inclusive growth in the economy is posing a structural risk to consumption, which includes spending on low ticket items.
As consumers lose confidence in future income, they decrease consumption. Research firm Espírito Santo Securities has said at current levels, “consumer stocks are priced to perfection and do not discount the brewing storm.” The broking arm has recently turned bearish on the consumer sector overall.
Indian consumers have become progressively more pessimistic about future prospects over the last two years, as reflected in the RBI consumer confidence surveys. With negative real wage inflation, based on the analysis of BSE-200 companies, and a plunge in job postings as reflected by job lister Monster Employment Index, has shown that things could do an about turn.
Negative real wage inflation and the plunge in job listings primarily reflects the pain of the urban population. “This is distressing as the majority of sales for the fast moving consumer goods (FMCG) sector are generated in urban markets. Investors have chosen to hide in the consumer sector and trades are getting crowded,” the broking firm has said in a report.
Stating that down trading in essentials and prolonged delays in discretionary spending will lead companies to take price cuts and increase advertising and sales promotion, the report says all of this is bound to affect the bottom line.
As consumers decrease overall spending, the first items to be impacted are discretionary spending on beverages and rich foods, including milk and milk products.
However, the report adds that the long-term growth drivers are in place. India has only recently reached the $1,489 GDP per capita level, providing a significant runway for high levels of growth. Commonly accepted convention states that GDP per capita growth starts to moderate only after surging past the $10,000 GDP per capita mark, it adds.
amritanair.ghaswalla@thehindu.co.in
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.