How Hungry (& Able) is Consumer?

Madan Sabnavis

There is much cautious optimism on consumption recovery this festival season. Most commentaries of consumer goods companies during the announcement of results pin their hopes on H2 spending. Thishas been happening for thelast9 quarters, and hasnow becomea ‘rolling hope’.

So, how many boxes have been ticked? P GST reformsare a game changer because prices of several products will come down. For consumer durables and autos, entry-level demand should increase as savings could be as much as10%. For other products and services, while consumption may not increase as there isa fixed amount of toothpaste and shaving cream that one can use, release of money through lower prices can increase consumption of other goods and services.

P Gol has already lowered I-T rates effectively, with the budget announcingarevenueloss of ?1lakhcr. This will mean higher purchasing power. But will all this money be spent, saved or invested? Any saving in taxes for higher income groups— incomes abovegl51akh a year may notadd to consumption if individuals were not real1y constrained by the income factor: So, itremains to be seen how much would be spent—and would generate more in GST collections for Gol. P> Inflation in general has come down, which improves consumer confidence. All estimates point at inflation of 3-3.5% for the year: So, while low inflation doesn’t mean falling prices, consumers will feel better off and probably spend more, especially as there hasbeen pent-up demand over the last two years for manufactured products. Here, of course, the reaction of companies is important. Several of them in the FMCG space have increased prices due to higher input costs. While partof this will get corrected through GST reforms, existing stocks willbea challenge for them. P Rural demand appears to belooking good, given that the monsoon has

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been satisfactory, and area under cultivation higher for all crops barringoilseeds and cotton. While there isnews of damage of some crops in the north and west due to excessive rains, on the whole, kharif crop should be better. This, combined with higher MSPs, should augur well for rural demand this year too.

» Unemploymentratio—be it the official NSO (5.4%) or CMIE (6.3%)—

has come down. So, the number of peo ple employed has been going up. The question, however, is where these jobs have been created, as they tend tobe concentrated inlogistics, retailand

construction where incomes may not behigh enough to support discretionary spending. So, thelink with consumption isstill tenuous, and its strengthwill be gauged this festival season. Onthefaceof it, itlookslike most of the boxes have been indeed ticked, and preconditions for an upsurge in consumption are met. The conundrum, however. will be more within India Inc, which has not been particularly kind to ‘headcounts’, as witnessed by several firms, especially in IT, which havelowered the number of jobs. Also, with AT, companies are increasingly opting to migrate from people to tech. Pace of increments has also slowed down, as corporates have tended to maintain their profit margins inan environment of anaemic growth in sales by controlling the salary bill in the last twoyears. The irony hereis thatas companies limit growth in headcount and get parsimonious with increments, this affects the overall spending power of employees. Which, in turn, affects demand for products of other companies. And therein lies therub.

The writer is chief economist, Bank of Baroda. Views are personal