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Business News/ Companies / Consumption in India to grow 7-8%: IDFC
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Consumption in India to grow 7-8%: IDFC

Consumption in India to grow 7-8%: IDFC

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Mumbai: India’s consumption growth is slowing, but there is no cause for concern yet. Consumption will still grow 7-8% in the current fiscal despite poor economic growth, high inflation and global uncertainties, according to Nikhil Vora, managing director of IDFC Securities Ltd.

The company’s analysts covered around 7,000km across seven states over the past fortnight to get a first-hand feel of consumer sentiment in Asia’s third largest economy. Good monsoon rains over most part of the last decade, coupled with the penetration of telecom and infrastructure spending on building roads, helped increase the prosperity of and opportunity for rural consumers. Prices of gold and agricultural land are at lifetime highs, also helping farmers.

India’s per capita income is 53,000 ($950), but IDFC’s interactions with consumers in the hinterland reveals that the actual figure could be higher. “My interactions within the most beaten down rural heartland suggest that maybe this number be higher by 30%," said Vora.

“Even if the monsoons are off the mark by 10% (this year), the impact will be minimal on farmers," said Vora.

Moreover, the trend of consumers buying more expensive products in urban India remains intact, said Vora. For instance, premium vehicles costing 10 lakh and above now make up 22% of the automobile market; this category had a negligible share five years ago.

The top end of the market is growing the fastest at 27%, followed by the mid-end at 12-13%. The mass end is growing the slowest at 5-6%, said Vora. The trend is reflected in advertising as well. “Of the overall advertising budgets of consumer companies, 75% is being spent on premium and top end of the market," he said.

The slowdown is being reflected in sectors like consumer durables. For instance, the 52,000 crore consumer durables category (television sets, refrigerators, washing machines and the like) has seen growth drop from 14.2% in 2010-11 to 2.5% in the fiscal ended 31 March, as per data compiled by the Centre for Monitoring Indian Economy Pvt. Ltd, a Mumbai-based think tank, and the Federation of Indian Chambers of Commerce and Industry (Ficci). Consumer confidence indices, a measure of consumers willingness to spend depending on economic conditions, are turning negative. One such index, managed by BluFin Advisors Pvt. Ltd (BluFin), is slightly negative at 49.2 on a 100-point scale.

sapna.a@livemint.com

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Published: 09 Jul 2012, 10:28 PM IST
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