Slow, But Steady

The tortoise pace growth is good for India, says RAMA BIJAPURKAR

Low growth Pre-Diwali sales are on a low Photo: TRILOCHAN S KALRA

INDIA’S SITUATION CAN BE explained by taking a leaf out of the story of the hare and the tortoise: India is the plodding tortoise (slow to integrate with the global economy). We will feel the heat but not be consumed by the fire. A slowdown in growth will happen, but not a recession or a collapse in consumption altogether. The tortoise banking system is still not fully global, and hence, not collapsing.

The much-criticised structure of consumer demand in India is also its saviour. There are lots of consumers and producers all consuming and producing a little bit each and accounting for at least 35 percent of consumer demand. They are an insulated group generally, and will slow down only in a globally inflationary environment.

Middle class consumption — another 35 to 40 percent — will slow down because of sentiment and credit access, but will gain from prices of real estate coming down and interest rates on bank deposits going up. But middle class consumption woes for specific sector employees will be definitely affected, particularly in sectors dependant on exports: almost threequarters of a million people employed in Infotech, far less in the apparel trade, few in aviation and some in the auto ancillary sector. However, this is not the largest proportion of either the middle class or Indian consumer spend but will contribute to slowdown — sadly, but luckily, we are not huge in scale in any.

However, high-end consumers’ consumption (which may account for 20 percent) will be affected a lot: they were the most leveraged, most optimistic about their future and buyers of big-ticket items from second homes to private boats to fancy real estate.

On the last one, upper income folk are pleased because it means that prices will settle, and there’s hope for the rest of us being able to afford to buy!

I think the consumer demand segment of GDP (65 percent) will slow down much less than investment, so GDP growth numbers will be lower than consumer demand growth. Inflation is the only thing we need to watch out for: a collapsed stock market will matter a lot less!

Expect a worst case halving of consumer demand growth numbers for the coming twelve months, but my best advice to companies is that Consumer India is a hydra-headed creature, with several demand segments, and there will always be some part of it more safe than something else, and offer opportunities for profitable growth.

Bijapurkar is a leading management consultant and corporate author