Some more economic reforms and less shrill voices will help curb the slowdown many fear India is headed for
The room was full of Chief Executive Officers (CEOs) discussing emerging consumer patterns in India. Topics like Artificial Intelligence (AI) dictating consumer choices and innovation-led business strategies steered the discussion to what perhaps was the most pressing question on everybody’s mind. Is the Indian economy slowing down and are we in the middle of a recession? After a brief pause, the CEO of a multi-national food and beverage company asked, “Are we talking ourselves into a recession? Is the situation really bad or are we painting a gloomy picture on the basis of one dark cloud?”
Given that a dismal five per cent Gross Domestic Product (GDP) has shaken markets and wiped out crone in investor wealth besides giving naysayers the opportunity to gloat, are the reasons for this slowdown lack of Government push, policy errors or the reluctance of industries to adjust to the new normal? While a five per cent GDP growth may be an upsurge for many economies around the globe, for an ambitious India trying to gallop towards a $5 trillion economy in the next five years, it seems like a setback.
While everyone will agree that the dismal GDP performance was mainly driven by falling consumption, not many will agree that there has been a rapid revolution in the Indian consumption space in the last few years. There has been a tectonic shift in the way Indians consume food (think ordering online vs eating out), stay in hotels (think OYO), commute to work (OLA, Uber, car pooling), or buy mobile phones, electronic goods and clothes (think Flipkart and Amazon).
Clearly, the urban vs semi-rural consumer divide in aspirations is disappearing fast and technology is assisting, if not dictating, consumption. Businesses that were waiting for the digital wave to pass are crumbling as innovation is here to stay.
The consumer is spoilt for choice with several, not so well known players creating niche markets in a space dominated by big players. People are getting the same products cheaper or at the same prices as previous years. The era of hyper-localisation or highly personalised service for consumers is here to stay.
The big story emerging from all this is that technology-led disruptions have severely changed the Indian consumption story. They have led to a deflationary impact on prices, directly hitting bottom-lines of industries still used to old patterns of consumption and cyclical consumer behaviour. Companies operating in this unwilling to adapt zone, have failed to deploy technological innovations for divesting their businesses, expanding or creating new market segments for themselves, thereby being forced to shut operations. However, a few bumps in the road are not the last word on the India recession story.
A few examples may be worth quoting at this stage. While many say the Indian smartphone segment may see the softest growth this festive season, there are 75 new smartphone launches planned in the next two months. Similarly, while many Fast Moving Consumer Goods (FMCG) players may have seen tapering down of revenues, some like Nestle have actually bucked the trend and seen double digit growth in premium categories. Encouragingly, while overall the real estate sector is facing ‘court to consumption’ issues, office space and office space rentals are staring at double digit growth. And people may not be buying new houses (whether to live in or for investment purposes) but they definitely are repainting their existing homes more frequently, leading to the paint sector recording a steady growth rate.
Significantly, while the civil aviation sector may be facing headwinds due to various difficulties like costly Aviation Turbine Fuel, governance issues with airlines and one carrier even stopping operations, the premium economy seats in airlines are actually flying fast. The above, recession-defying examples are in no way meant to dissuade the Government from carrying forward surgical strikes on growth barriers or let sticky economic issues take cover behind crucial national security and sovereignty issues, but to propel them faster. Relaxation in Foreign Direct Investment (FDI) limits of some job generating sectors such as coal and single brand retail; fund infusion in major Public Sector Banks (PSBs) and subsequent mergers are likely to free up more capital for small and medium enterprises, home and car buyers. Relaxation in policies and taxes for the automobile sector could be steps in the right direction. But this has to be continuously addressed.
Recent announcements by Finance Minister Nirmala Sitharaman are a welcome step but a war room set-up comprising key officials from various Ministries monitoring the situation and taking calls on the move may be good from the market optics point of view. This way at least, India won’t shout itself into a recession.
(The writer is a policy analyst)