The shopping season is here, and it isn’t raining freebies. Call it the big squeeze or the Christmas freeze: stubbornly high prices, rising interest rates, a plunging rupee and the general economic slowdown have ensured that the Yuletide cheer is missing in shopping malls and arcades.
Hemmed in by rising raw material costs and costly borrowing, companies are looking for means to strengthen margins and are raising prices than offering discounts.
The Reserve Bank of India (RBI) has raised interest rates 13 times in the past 20 months to tame inflation. The Bank paused finally this month, as the continuous monetary tightening seems to have lately succeeded in taming the price monster, albeit in a small measure.
The cost of this tightening: families have been forced to cut down on non-essential expenses. And with loans turning costlier, purchase of goods such as cars, bought mostly via loans, are being put off.
“We had wanted to buy a LED TV but have put it on hold, till don’t know when,” said Sumati Parama, a Chennai-based homemaker. “We had also planned to go in for a new two-wheeler, but are really thinking whether to or not, given the four-time increase in petrol prices.”
The tug-of-war between sliding growth and rising inflation has severely hurt consumption demand, the edifice of the India growth story, and its showing.
Consumer durable loans have contracted by 16.4% during April to September, 2011, compared to 9.5% last year, clearly indicating that people are putting off purchases of goods such as washing machines, televisions and microwave ovens.
The growth in vehicle loan disbursements has also decelerated to 5.9% in this period, compared to a 10.3%-growth last year, as car sales slowed on the back of rising interest rates and higher fuel prices.
Car makers are offering steep year-end discounts to boost sagging sales and dispose of unsold older models before 2011 draws to a close.
The country’s top carmakers like Maruti, Hyundai and Tata reported muted sales this festive season, compared to the previous two years.
“The excitement this year is not as high as it was last year and the year before,” said Arvind Saxena, director (sales and marketing), Hyundai Motor India. “Industry growth would only be marginal at best.”
Car sales contracted 3.53% to 1.2 million units in the April-November from a year ago, according to Society of Indian Automobile Manufacturers (SIAM), largely because of because of high fuel prices and interest rates.
Consumer goods companies, on the other hand, appear to have given the practice of year-end discounts this year a complete go-by. The sliding rupee, which has shed more than 16% in value in the last few months, have hit these companies the worst as imported components have become costlier.
“We would not come out with any year-end discount schemes this year,” said a top executive of a Korea-based electronics goods maker.