Indicus in NewsDurables' Durability?
The recently released Index of Industrial Production (IIP) data for July 2008 was a welcome relief reporting a five month high of 7.1 per cent on account of high growth in production of capital goods and consumer durables. Clearly the suppliers are gearing up for the festive season expecting the demand to pick up. Some say it's just a process of inventory build-up following months of low production. Other's say that it is a reflection of buoyancy in consumer sentiment. So the obvious question is: what lies in store for the durable good's industry?
A number of factors are working to the detriment of this industry. This includes:
- A high rate of inflation: A strong demand dampener - Inflation hits the durables sector with a greater impact due to its characteristic long inter-purchase interval and due to the fact that typically necessities are non-durables. The situation is compounded by the fact that rising input costs have forced producers to hike prices by 3-7 per cent.
- A depreciating Rupee: Further increasing input cost - Most top-end models of white goods (washing machines, microwaves, air-conditioners and refrigerators) are either wholly imported or imported and hence assembled in India. A weakening rupee has added to the production cost of these goods. Though its effect varies across manufacturers, a prudent estimate explains a standard minimum imported component of 5 per cent across durable goods' categories.
- Shrinking consumer finance: Adversely affecting demand - Direct credit based funding accounts for 10-20 per cent of sales in the consumer durables segment. Several banks have withdrawn this facility and now offer credit only through credit cards. The exit of GE Money and monetary contraction by the RBI has only worsened the situation.
Despite the above factors, the future is not expected to be bleak. The election-bound government at the centre is leaving no stone unturned in doling out goodies to the voters. The government hopes to augment purchasing power by accepting recommendations of the Sixth Pay Commission and granting the much-hyped farm loan waiver. Moreover, several reports point to the rising pay checks in the private sector as well.
Given the onset of the festive season which marks the boom period for this industry, the immediate future is expected to be bright. On the whole, medium term prospects could be dim on account of inflation but the long term growth prospects of this sector are intact.
Housing Pattern of Indian Cities
40% of the urban Indians live in fairly large houses, defined as 3 bedrooms or more. In the smaller towns the proportion goes up to as much as 51%. However, in the 5 mega cities the proportion of people living in large houses goes down very significantly, to reach a low of just about 13% in Mumbai. Interestingly, more people in Bangalore and Kolkata appear to enjoy the benefits of staying in larger houses than in Delhi. The proportion living in very small houses is very high in Mumbai, as much as 2.5 times its closest rival. In fact 75% of Mumbai respondents were living in apartments that were less than 1000 sq feet in size.
In terms of square feet, 90% of urban Indians live in houses smaller than 2,000 sq feet.
