Will it be yet another bleak and bland Dussehra, Pujo, Navratra and Deepavali? Considering the rising prices yet again and inflation continuing to remain above the 8 % mark for 20 consecutive months, this could be yet another difficult time for the average Indian households. Festivals in India hold a lot of buying potential, not just that people make festival related purchases, a lot of big ticket purchases like fridge, TV, cars and others get postponed to the festival period. Festivals in India also symbolize new beginnings, so new businesses are initiated in this period. With not just inflation on the rise, but expectations of inflation[i] touching all-time highs, there is limited reason for enthusiasm among the common masses.
Dip in planned air travel, fall in gold purchases are some of the leading indicators of what is to come this festival season. Caution is the key word with people preferring to not just spend less but also postponing any planned purchases. Hardening of interest rates make matters worse for households as borrowing power falls and personal loans are tough to come by. Festival times are of particular interest to the low income groups whose propensities to consume rise the maximum in such periods. Inflation shrinks not just their buying power but also their dreams. The bottom of the pyramid[ii] whose purchasing power has driven FMCG profits in the last few years may now contribute much less. Are these signs of a sticky patch or is it a meltdown for the festival season in India?
Does news of inflation set in fears or solidify concerns we have always had? Is there a silver lining to this phenomenon? Do you see something different?
Posted by Archana Pillai
[i] RBI’s survey on inflation expectations is averaged well above the actual inflation figures. People are anticipating inflation and adjusting for it well in advance.
[ii] Phrase popularized by Prof C K Prahalad in his famed “Fortune at the Bottom of the Pyramid” to describe the poorest sections in an emerging market and the need to harness their latent buying potential.
9 comments:
The season, which began with the end of the Muslim holy month of Ramadan on Aug. 31, and ends with the Hindu festival of lights, Diwali, in late October, is seen as a lucky time for big purchases from cars and property to gold.
But analysts warn that expenditures could be curtailed this year as the country's economy slows under the brunt of nearly a dozen interest rate hikes in 18 months, aimed at taming nine percent-plus inflation.
“High-value purchases and where borrowed money is involved could slow down,” Siddhartha Sanyal, chief India economist with Barclays Capital, told AFP.
India posted its slowest economic growth in six quarters last week, with output up 7.7 percent year-on-year, as expansion was hit by the longest stretch of monetary tightening in a decade
Indian car sales are viewed as a barometer of the national's overall economic health. Car sales slumped 16 percent year-on-year to 133,747 units in July — their biggest drop in nearly three years — as high interest rates and rising fuel prices kept buyers out of showrooms.
He predicted that Indians — the country is the world's largest consumer and importer of gold — would follow wider trends to buy jewelry as an investment and safe haven in troubled times.
The current year may prove as a barrier in the purchases for the present festive shopping with the spiraling inflation rates has forced even the RBI to monitor the diwali purchases this year. This is being done in order to measure the extent to which the domestic consumption pattern has been effected by continuous hikes in the interest rates by the RBI . In the past 18 months the rates have been hikes by a mere 11 times. The results of this study will be an eye opener for the RBI and may result in a policy response in the near future.
The auto industry which is expecting a mere growth of single digits as compared to 34% last year. This could be due to mutiple factors but imagine the plight of the small scale manufacturers in the market today, as festival sales accounts for a major chunk of their income statement in an year.
Another way to measure the sale in the urban areas is through the retail sales which is already undergoing a slowdown and if it does not catch up in the festival time then the slowdown is expected to go on for another two quarters.he trickle-down effect of lower festival sales will ultimately be felt across the primary sectors of the economy. The worst part is that if sectors such as organised retail show single-digit growth, it will, in fact, indicate negative growth after adjusting for inflation. This could also effect the borrowing pattern and the employment number.
The slowdown in sale is it likely to bring any relief from the inflation is the question
The inflation rate in India was last reported to be 9.22 percent in July of 2011. Since inflation is at its height right now in India hence people are worried about the future as per capita income is not growing at the same rate. Hence it is very obvious that there will be a downfall in spending during festival time. The trend of increased spending during festival time is generally among middle class and upper middle class and since inflation effects this sector very much because of the limited income and hence it is obvious most of them will prefer not to spend much during festivals. Since interest rate on the personal and home loan is also hiking and hence real state also won’t be able to do a good business this year.
Higher interest rate is going to kill the festive fizz as it will affect demand and buyer’s mood as the forthcoming festive season, peaking around diwali is going to have a dampened mood because of higher borrowing costs, coupled with skyrocketing prices of gold & silver. It is worth mentioning that loan rates of automobile loans and housing loans have been raised about a dozen times in almost same number of quarters. The car and two wheeler makers, as also the real estate people are going to suffer the most, next to the common man.
The major concern is WPI(Wholesale Price Index)
India’s benchmark wholesale-price inflation accelerated to a 13-month high of 9.78 percent in August, and higher food and fuel costs and weakness in the rupee may further boost prices. This is the real concern of Central Bank because it can boost prices steeply.
AS pointed out rising inflation and a tightened interest rate is surely going to dampen the festive spirits with sectors like automobiles,consumer durables and real estate are going to take the hit .however gold and precious metals which are traditionally sought after will continue shining as buyers not only see them as purchase related to festivals but also as a safe heaven for investment during these bleak times.According to world gold council india imported 563 tons of gold alone in the first half of the year a trend indicative that as festive season approaches gold prices will continue to soar
Recently Sony reported an increase in sales of its television sets and cars of all companies(except Maruti Suzuki)reported an increase in sales over same period's last year sales. This makes the picture all the more messy of whether the Indian consumer is spending or postponing during this period of high inflation and is this behavior specific to only some goods in particular...?...
Inflation and the festival time in India
In this festival season the inflation produces detrimental effect on the health of Indian economy .Inflation can take place due to increase in supply of money, decrease in value of money and increase in bank interest rate.
In this festival season inflation can be caused due to decrease in value of money as compare to dollar .As it is there is decrease in value of money we witness a rise in the inflation . And inflation rate is also increased by 8.43% in the last 3 months. RBI has also increased rate of interest on housing car and property loan which will in future lead to increase in inflation during the festive season. Inflation can also be increased when company increases the total price of goods and services during the festival season.
During festive season, we also witness that generally, purchasing power of buyer increases because more than half of the population of India is very traditional, therefore they believe that buying on diwali will prove to be lucky for them, which leads to more buying on occasion like diwali which in turn induces the industries to increase the prices of consumable goods and services .This can be one of the main reason for increase in inflation rates.
--
Post a Comment