If inflation……!!

Inflation is all set to become the single most significant number for Indian economy in coming three months. The consumer spending, interest rate, overall economic growth and trend of investment will anchor on the inflation data of weeks to come. With the ensuing festive season, the shopping spree of Indian consumers will be guided by the level of retail prices and companies smartness to woo them despite pressure on margins.  While RBI will keep a hawk eye on inflation and take the future course about interest rates for the busy season of bank credit. Consumer spending will be an indicator of demand while interest rates will be a pointer for the status of industrial investments during the second half of the current fiscal.

India’s shopping season is all set to begin as winter festivals are setting in. Marketers are keeping fingers crossed as inflation has already spoiled the shopping party. For the first time customers are not showered with the offers which they were habitual of during this season. This is probably the first festive season when almost all of the automobile, home-appliance or electronics companies have increased the prices to factor in the increased costs of production, energy and borrowings. Food basket of consumers is already costly with the ever rising prices of wheat flour biscuits, sugar and oil.

Indians may not spend much during this festival season owing to the high inflation in the country, according to the 'Mood of the Nation Survey' conducted by global research firm IPSOS. A newspaper reports state that more than a third (78%) Indians claimed that their planned expenditure during this festival season was less than Rs 10,000. Among the respondents, about 43% individuals said that their spend during this Diwali was less than Rs 5,000. These people were mostly from middle and lower middle income families. The IPSOS survey was conducted between September 24-27, 2012 among the men and women in Delhi, Mumbai, Kolkata, Chennai, Bangalore and Lucknow.

Meek festival demand is significantly risky for the economy. Companies won’t be motivated enough to start fresh investment for the enhancement of their capacities in a timid demand scenario.  Hence if inflation is not checked, less shopping by consumers will add woes to the economic downturn.

Indian industry is crying for low interest rate on bank borrowings.  Reduction in interest rates is directly related to reduction in the level of inflation. India's annual consumer price inflation (CPI) fell in September to 9.73% from 10.03% in August, driven by a marginal fall in fuel and food prices. But it is still high on Reserve Bank of India’s parameters to reduce interest rates. In the last policy meeting RBI remained hawkish on the stance as the WPI refused to budge below 7%, the RBI’s comfort zone. Indian interest rates are the highest among the major economies .With the pass-through of diesel price likely to take effect soon, CPI inflation would head back to double digits in the next month. Inflation data will shape up the RBI's policy review, scheduled on October 30. RBI’s stance towards interest rates will set the tone for fresh investment by private companies in the economy.

Global oil prices will be the key detriment for the inflation in coming months. Global commodity prices will also be cardinal for the behavior of inflation in Indian market. Although an unprecedented fall in the growth of China is a bad news for global economy but it will still help reduce the crude and commodity prices.  A renewed strength of Indian Rupee is likely to help in keeping imports cheaper and inflation under control.

The stubbornly high Inflation is one of the major factors behind the India’s latest economic hardships. It is now going to be crucial policy guide for the government’s renewed efforts to rehabilitate economy. Pick up in the demand and cheap credit is must to bring back the feel good factor among investors and industry.  This is the most opportune time for government to take inflation control as supreme ‘reform agenda’ for the good of the economy in general and aam adami in particular.

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FDI in retail : Enter consumer !

Excuse me!!!  Aren’t we being too touchy about FDI in retail? Is this a country of farmers only? Is the interest of only kiranawalas paramount? What about India’s largest socio-economic class? What about us? We, the ubiquitous consumers.  It is high time now to bring the largest stakeholder in the discourse.

  Farmer’s interests are important. Role of small traders is not less significant. But we are a country of 1.25 billion people. Consumers, especially middle class consumers are the largest mass directly influenced by the happening in retail arena. Producers are also consumers in a practical manner. We can’t deny the fact that the recent growth of Indian market is a gift of nation’s emerging consumer culture. Constant and strong growth in individual consumption expenditure over last few years has upped growth of Indian market. Private consumption expenditure is rising at an annual rate of 8-9 percent since last seven years as per the Economic survey of 2012.

   Organized retail has already become a ten year old experience in India and consumers have developed their own perspective about retailing. A host of researches and surveys are there to support the fact that organized retail has qualitatively improved shopping paradigms in India. A recent survey of renowned consulting agency has found that the growth of modern trade ushered in several benefits for consumers, some of which include better prices, increased product choice and an improved quality of life. Consumers are experimenting with products, brands and categories, and are trading up in their purchases, wanting to use products of good quality. Modern trade retailers, on their part, will also help consumers understand how to use products.

    Greater supply of products, increased competition, new product launches, etc., increase the flow of products into the market. As a result, prices tend to fall and become more competitive. Locally sourced products and commodities also help keep prices cheaper. Basic food of the urban poor is cheaper in supermarkets of Delhi than in traditional retail shops: rice and wheat are 15% cheaper and vegetables are 33% cheaper, just because of scale of retail operations and better supply chain management. Indian consumers have got a proactive support from organized retail during the recent bout of high inflation. This support came in the form of innovative packaging and bundling/discount offers.   

India’s organized retail experience has remained by and large satisfying for the largest socio-economic class ie consumers. Is it really true that organized retail have put danger to the survival of small retailers? Or farmers have suffered coz of retail opening? It is time to look for the ground realties and debate practically. Let the consumer enter in the debate, the bona fide stakeholder of India’s growth story. 

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