New Delhi: Food inflation, the late arrival of summer and an increase in product prices have led to growth slowing in the consumer durables market, which may herald a wider, more sustained slump in the economy as reflected in car sales in recent months.
Senior executives of various companies manufacturing air conditioners, refrigerators and washing machines said that growth in their industry has slowed to 12-13% in the April-May period. If the trend continues for another month, this would compare unfavourably with 17% growth in the first quarter of last year. This comes at a time when firms are struggling to keep prices in check amid high inflation and rising raw material prices.
The mood is all the more glum because the last fiscal year ended with a sudden growth surge. The Rs 35,000 crore consumer durables industry grew at a scorching 46% pace in the quarter ended March, according to Eric Braganza, president, Haier India.
India’s economy grew at its slowest pace in five quarters at 7.8% in the January-March quarter of fiscal 2010-11, signalling the start of a deceleration in expansion. Growth in investment as represented by gross fixed capital formation slowed to 0.37% during the fourth quarter due to rising interest rates, the lowest in six quarters.
Non-oil imports growth continued to slow in April, to 17% from 21% and 31% in the preceding two months.
Non-oil imports are an indicator of industrial activity as about 75% of these are industrial inputs. Growth in passenger car sales slowed to 15% in April compared to 25% in March, signalling slowing demand.
Shantanu Dasgupta, vice-president, corporate affairs and strategy, Whirlpool of India Ltd, said there was just a marginal decline in demand and attributed it to food inflation. The annualized rate for food inflation went up from 10.94% in 2010 to 11.6% in 2011. “With food being priority and consumers having lesser disposable incomes, the growth rates in the consumer durables market has been affected modestly.”
Naresh Gupta, national planning director at Cheil World Wide SW Asia, the ad agency for Samsung India, said the industry growth rate has declined by about 5 percentage points due to food inflation.
He declined to comment on Samsung’s business, but said that manufacturing costs had escalated by 8% on average.
Dasgupta said rising input costs were having an impact.
“Manufacturing costs have gone up to the extent of commodity price increases, rise in fuel prices, etc.,” he said. “We will be unable to share the exact increase in input costs, though part of it has been offset by increasing consumer prices.”
This rise in manufacturing costs and the consequent increase in retail prices have also affected growth.
Braganza said steel prices (used in the manufacture of most consumer products) are expected to go up by Rs 600-1,000 per tonne this month and are likely to have a knock-on effect on showroom price tags.
LG Electronics India Pvt. Ltd’s ACs became 8-9% costlier in March while the prices of home appliances rose by 5-8% in the first quarter of this fiscal, said Soon Kwon, South-West Asia region president and managing director, LG India. However, he said the price rise had not affected LG’s sales. Y.V. Verma, the company’s chief operating officer, concurred with this, adding that LG still saw its average sales grow 20% last month.
A Samsung spokesperson said there had been no slowdown but the late start of summer had made a dent in the sales of ACs. LG’s Kwon also said the dip in demand for ACs was because of the delayed summer. The segment may be able to make up for lost time, however, with maximum temperatures in north India exceeding 40 degrees Celsius.
Anirudh Nayak, product consultant at Samsung Plaza, at DT City Centre, Gurgaon, confirmed that the prices of the company’s ACs had risen, as had that of other items. “The prices of our refrigerators have gone up by 20%. Last year, March onwards we were sold out but this year our sales have declined.
Alfa Electronic Services Pvt. Ltd, a Delhi-based dealer for Haier, said the price hike in consumer durables has led to a marginal drop in demand.
Although most firms admitted to growth slowing, many said that it was a temporary phase. According to Suresh Khanna, former secretary general, Consumer Electronics and Appliances Manufacturers Association, an all-India organization, the slowdown was a minor hiccup due to a cooler May summer.