Indicus in NewsHigh interest rates, inflation and petroleum prices.
Consumer finance has slowed down owing to high interest rates. The outlook is gloomy in the near term in spite of high availability as high interest rates have hit the affordability road block. The key industrial segments impacted are auto and white goods, which account for a substantial proportion of consumer finance. The durables sector has witnessed a sluggish growth for over a year and the interest rates are likely to further dampen the spirits. The spiralling inflation imply that the real interest rates are currently negative and purely on that count interest rates are unlikely to decline anytime soon.
Hike in petroleum product prices are likely to impact sectors such as steel. The government has already hiked excise duties in the 1500cc and 2000 cc categories. A 5-10% hike in consumer durables is expected too, as companies will be forced to pass on some of the high input costs to consumers. FMCG companies are also feeling the pinch of the oil hike and retailers expect prices to rise by about 5%, mainly on account of higher freight.
Consumer finance has slowed down owing to high interest rates. The outlook is gloomy in the near term in spite of high availability as high interest rates have hit the affordability road block. The key industrial segments impacted are auto and white goods, which account for a substantial proportion of consumer finance. The durables sector has witnessed a sluggish growth for over a year and the interest rates are likely to further dampen the spirits. The spiralling inflation imply that the real interest rates are currently negative and purely on that count interest rates are unlikely to decline anytime soon.
Hike in petroleum product prices are likely to impact sectors such as steel. The government has already hiked excise duties in the 1500cc and 2000 cc categories. A 5-10% hike in consumer durables is expected too, as companies will be forced to pass on some of the high input costs to consumers. FMCG companies are also feeling the pinch of the oil hike and retailers expect prices to rise by about 5%, mainly on account of higher freight.
Eco friendly Cars and small cars - emerging trend in times of high crude prices.
Honda's FCX Clarity is a fuel cell vehicle that runs on electricity powered by hydrogen, and emits only water vapour and heat. This car runs on a chemical reaction between hydrogen and oxygen. It is bascially an electric car, that fuels itself. The top speed is 160 km/h, it has 135 horse powers and the range is 430 km. The car is expected to be released this summer. On the other hand, Honda's rival Toyota Motor Corporation was named by MotorWeek as "Best Eco-Friendly" for 2007. MotorWeek named the company instead of selecting a specific vehicle model to give the award to. Said a press release, "At MotorWeek, we believe Toyota's commitment to reducing fuel consumption across their broad product line is not only a pioneering step, but is helping to persuade both the public and the automotive industry that we can significantly reduce fuel consumption without giving up the freedom of personal transportation."
India's first eco-friendly car, Maini Reva, has been on Indian roads for some time, but hasn't really hit the imagination. This is an electric passenger car, which makes use of a battery and leaves the atmosphere free of pollutants like carbon-di-oxide and smoke. This car moves decently on city roads. However, it can seat only two comfortably with the rear space more suited to fill shopping bags. Its good on saving the environment but doesn't do well on reliability. The Reva is really not an alternative to replace existing cars.
Mercedes-Benz Cars have decided to launch the two-seater "smart fortwo" on the Chinese market in mid 2009. The "smart fortwo" meets the same high standards which apply to larger vehicles from Mercedes-Benz cars. These include top quality and reliability, outstanding safety and economical and environmentally friendly driving combined with comfort and agility. This car is loved first and foremost for its innovative design with which the brand trod a new, different path and achieved worldwide cult status for the fortwo. Daimler AG expects additional sales potential for the brand in China as the small car is tailor-made for the increasing number of small car customers on the Chinese market. The smart fortwo delivers modern technology, premium quality and safety, low fuel consumption and corresponding low CO2 emissions and inner space that offers advantages in the dense traffic of China's numerous large cities.
Honda's FCX Clarity is a fuel cell vehicle that runs on electricity powered by hydrogen, and emits only water vapour and heat. This car runs on a chemical reaction between hydrogen and oxygen. It is bascially an electric car, that fuels itself. The top speed is 160 km/h, it has 135 horse powers and the range is 430 km. The car is expected to be released this summer. On the other hand, Honda's rival Toyota Motor Corporation was named by MotorWeek as "Best Eco-Friendly" for 2007. MotorWeek named the company instead of selecting a specific vehicle model to give the award to. Said a press release, "At MotorWeek, we believe Toyota's commitment to reducing fuel consumption across their broad product line is not only a pioneering step, but is helping to persuade both the public and the automotive industry that we can significantly reduce fuel consumption without giving up the freedom of personal transportation."
India's first eco-friendly car, Maini Reva, has been on Indian roads for some time, but hasn't really hit the imagination. This is an electric passenger car, which makes use of a battery and leaves the atmosphere free of pollutants like carbon-di-oxide and smoke. This car moves decently on city roads. However, it can seat only two comfortably with the rear space more suited to fill shopping bags. Its good on saving the environment but doesn't do well on reliability. The Reva is really not an alternative to replace existing cars.
Mercedes-Benz Cars have decided to launch the two-seater "smart fortwo" on the Chinese market in mid 2009. The "smart fortwo" meets the same high standards which apply to larger vehicles from Mercedes-Benz cars. These include top quality and reliability, outstanding safety and economical and environmentally friendly driving combined with comfort and agility. This car is loved first and foremost for its innovative design with which the brand trod a new, different path and achieved worldwide cult status for the fortwo. Daimler AG expects additional sales potential for the brand in China as the small car is tailor-made for the increasing number of small car customers on the Chinese market. The smart fortwo delivers modern technology, premium quality and safety, low fuel consumption and corresponding low CO2 emissions and inner space that offers advantages in the dense traffic of China's numerous large cities.
Medium term trends in Consumer profiles
As the Indian economy has moved into the higher growth path, the rapid changes in income level and consumption patterns have been the subject of interest, debates and analysis. Rising per capita income, increased literacy and rapid urbanisation have caused rapid growth and change in demand patterns. The rising aspiration levels, increase in spending power has led to a change in the consumption pattern.
Essential items such as food, beverages, rent and fuel accounted for 82% of consumption in 50-51, and 78% after 20 years, a shift of about 4%. By 90-91, these items accounted for 64% of consumption, a shift of 14 points, a much larger shift as an under penetrated economy gathered pace. During the last 17 years, the trend has accelerated further and today essential items account for under 40%, still high by developed country standards but significantly down from earlier periods. India is beginning to see the first signs of a long-term consumption boom as a result of rising disposable incomes, higher life expectancy, rapid urbanisation and changing lifestyles.
There have been very significant shifts in consumer spending patterns in the short interval between 2006 and 2008. While the consumer market has grown by 19% during the interval, the key difference has been a decline in proportion spent on basic food (cereals & bread, pulses, sugar & gur, oils & oilseeds, fruits & vegetables, potato & other tubers, milk & milk products, meat, egg & fish, coffee, tea & cocoa, spices, other food, beverages, pan & other intoxicants, tobacco & its products) and the gains have been made in the category of miscellaneous goods and services which includes among others Hotels and restaurants, utilities, rent, medical expenses, recreation, personal transport and education. The expenditure on food has grown by just 5% whereas the expenditure on the latter category has grown by as much as 29%, well above the average expenditure growth. In fact, every other category has declined in proportion, except the durables, which has remained stable.
As the Indian economy has moved into the higher growth path, the rapid changes in income level and consumption patterns have been the subject of interest, debates and analysis. Rising per capita income, increased literacy and rapid urbanisation have caused rapid growth and change in demand patterns. The rising aspiration levels, increase in spending power has led to a change in the consumption pattern.
Essential items such as food, beverages, rent and fuel accounted for 82% of consumption in 50-51, and 78% after 20 years, a shift of about 4%. By 90-91, these items accounted for 64% of consumption, a shift of 14 points, a much larger shift as an under penetrated economy gathered pace. During the last 17 years, the trend has accelerated further and today essential items account for under 40%, still high by developed country standards but significantly down from earlier periods. India is beginning to see the first signs of a long-term consumption boom as a result of rising disposable incomes, higher life expectancy, rapid urbanisation and changing lifestyles.
There have been very significant shifts in consumer spending patterns in the short interval between 2006 and 2008. While the consumer market has grown by 19% during the interval, the key difference has been a decline in proportion spent on basic food (cereals & bread, pulses, sugar & gur, oils & oilseeds, fruits & vegetables, potato & other tubers, milk & milk products, meat, egg & fish, coffee, tea & cocoa, spices, other food, beverages, pan & other intoxicants, tobacco & its products) and the gains have been made in the category of miscellaneous goods and services which includes among others Hotels and restaurants, utilities, rent, medical expenses, recreation, personal transport and education. The expenditure on food has grown by just 5% whereas the expenditure on the latter category has grown by as much as 29%, well above the average expenditure growth. In fact, every other category has declined in proportion, except the durables, which has remained stable.
Consumption Pattern
Source: Market Skyline of India 2008-09
Income Shift
Source: Market Skyline of India 2008-09