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issue: February 2009 APPLIANCE Magazine

India Report
India’s Consumer Credit Crunch


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Adite Banerjie, India correspondent

The global economic downturn is taking a toll on the consumer durables sector in India.

India’s growth rates were down in the first half of 2008 from those recorded during the January–June 2007 period. Now all indications are that the second half of the year was also a struggle for the economy and for the appliance industry.

ORG, an agency that tracks sales of various consumer durables, reported an 18% growth for the color TV segment during the January– June 2008 period, which was lower by 3% compared with the same period in 2007.

Air-conditioner sales have nosedived, recording just 18% growth as against 51% in the previous year. Refrigerator sales too have halved from 15% in January–June 2007 to 7% in 2008.

Most durable manufacturers, such as LG, Samsung, and Onida, raised prices of their products by 3–7%. Coupled with this, banks have stopped offering credit for purchase of consumer appliances. Some players, like GE Money, have quit the credit scene, making it more difficult for consumers to access credit. Because credit-led sales accounted for nearly 30% of all durable goods sales, sales of high-value consumer goods were impacted. Credit card companies are still offering consumers loans for household goods, but the number of credit card users is still not significant. Consumers are also less eager to take on credit cards’ higher interest rates.

Appliance OEMs in India feel that, while purchases in the high-end premium segment will remain more or less stable, lower-end segments will be badly hit in coming months. Also, consumers who were planning to upgrade to higher-end models may defer their decision.

As inflationary pressures rise, there would be a tendency for manufacturers to cut down on operation costs and pass on some of the increased costs to consumers by raising product prices. As it is, the price of steel has gone up by nearly 45% over the last year. The Federation of Indian Chambers of Commerce and Industry (FICCI) has warned that “if the phase of weak growth continues, some companies may be forced to close down a few production facilities.”

The good news is that consumer durables like appliances are likely to be less affected than sectors such as information technology, real estate, and automobiles. Inflation and high interest rates will cause consumer demand to dip, but the government is confident that there will not be a major impact on investment and forecast the Indian economy to turn in a GDP growth rate of about 8%.

The not-so-good news is that the impact of the downturn was felt during the September–December period, a time of festivals when consumer spending is traditionally at its peak, accounting for 35–40% of annual durable goods sales. Sales during Diwali were lower this time, The global economic downturn is taking a toll on the consumer durables sector in India. leaving large retail inventory stockpiles. Some retail chains such as Sony Mony offered up to 51% discount on LCD TVs, air-conditioners, refrigerators, and digital cameras. Retailers Vijay Sales and Next also offered large incentives. The festive season did see increased sales of mid-priced LCD TVs and laptops.

Retailers also bundled products at attractive prices, such as a laptop and a printer combination or an LCD TV and washing machine combination. Both offers found takers. Haier stores offered consumers gifts worth at least Rs 6000 (more than US$120) through scratch cards, and Haier’s promotional spending was higher by almost 20% over the last festival season. LG too spent more on advertising and promotion during the festival season while Samsung announced new product launches to spur consumer interest.


Correspondent Adite Banerjie (formerly Chatterjee) regularly reports from New Delhi on the appliance industry in India.

 

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