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Consumer 2.

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Indicus Analytics
September, 2008

Durables’ Durability?
The recently released Index of Industrial Production (IIP) data for July 2008 was a welcome relief
reporting a five month high of 7.1 per cent on account of high growth in production of capital goods
and consumer durables. Clearly the suppliers are gearing up for the festive season expecting the
demand to pick up. Some say it’s just a process of inventory build-up following months of low
production. Other’s say that it is a reflection of buoyancy in consumer sentiment. So the obvious
question is: what lies in store for the durable good’s industry?
A number of factors are working to the detriment of this industry. This includes:
• A high rate of inflation: A strong demand dampener - Inflation hits the durables sector with a
greater impact due to its characteristic long inter-purchase interval and due to the fact that
typically necessities are non-durables. The situation is compounded by the fact that rising
input costs have forced producers to hike prices by 3-7 per cent.
• A depreciating Rupee: Further increasing input cost - Most top-end models of white goods
(washing machines, microwaves, air-conditioners and refrigerators) are either wholly
imported or imported and hence assembled in India. A weakening rupee has added to the
production cost of these goods. Though its effect varies across manufacturers, a prudent
estimate explains a standard minimum imported component of 5 per cent across durable
goods’ categories.
• Shrinking consumer finance: Adversely affecting demand - Direct credit based funding
accounts for 10-20 per cent of sales in the consumer durables segment. Several banks have
withdrawn this facility and now offer credit only through credit cards. The exit of GE Money
and monetary contraction by the RBI has only worsened the situation.
Despite the above factors, the future is not expected to be bleak. The election-bound government at the
centre is leaving no stone unturned in doling out goodies to the voters. The government hopes to
augment purchasing power by accepting recommendations of the Sixth Pay Commission and granting
the much-hyped farm loan waiver. Moreover, several reports point to the rising pay checks in the
private sector as well.
Given the onset of the festive season which marks the boom period for this industry, the immediate
future is expected to be bright. On the whole, medium term prospects could be dim on account of
inflation but the long term growth prospects of this sector are intact.
Housing Pattern of Indian Cities
What type of houses do urban Indians live in? What is the difference across various cities? Here are
some answers
40% of the urban Indians live in fairly large houses, defined as 3 bedrooms or more. In the smaller
towns the proportion goes up to as much as 51%. However, in the 5 mega cities the proportion of
people living in large houses goes down very significantly, to reach a low of just about 13% in
Mumbai. Interestingly, more people in Bangalore and Kolkata appear to enjoy the benefits of staying in
larger houses than in Delhi. The proportion living in very small houses is very high in Mumbai, as
much as 2.5 times its closest rival. In fact 75% of Mumbai respondents were living in apartments that
were less than 1000 sq feet in size.
In terms of square feet, 90% of urban Indians live in houses smaller than 2,000 sq feet.
By Number of Bedrooms

Others 49.8% 38.4% 11.8% 51.6%

Bangalore 40.5% 49.3% 10.2% 42.4%

Chennai 60.2% 34.3% 5.6% 37.0%

Kolkata 55.2% 33.3% 11.5% 41.3%

Mumbai 75.7% 19.1% 5.1% 12.8%

Delhi(NCR) 54.6% 36.7% 8.7% 32.1%

All India 54.0% 36.4% 9.6% 40.7%

Less than 1000 sq. f t 1000-2000 sq. f t More than 2000 sq. ft >3 Bedrooms or independent house

By size of the apartments

Others 49.8% 38.4% 11.8%

Bangalore 40.5% 49.3% 10.2%

Chennai 60.2% 34.3% 5.6%

Kolkata 55.2% 33.3% 11.5%

Mumbai 75.7% 19.1% 5.1%

Delhi(NCR) 54.6% 36.7% 8.7%

All India 54.0% 36.4% 9.6%

Less than 1000 sq. ft 1000-2000 sq. ft More than 2000 sq. ft

Owned house versus rented house

Others 35.7% 64.3%

Bangalore 59.5% 40.5%

Chennai 55.1% 44.9%

Kolkata 25.3% 74.7%

Mumbai 32.0% 68.0%

Delhi(NCR) 39.9% 60.1%

All India 40.7% 59.3%

Rented Ow ned
Mumbai and Kolkata have the highest incidence of people living in owned houses, whereas the
southern cities Bangalore and Chennai have the majority of its dwellers living in rented apartments.
The data presented here is applicable for SEC A and B only, who represent about 30% of urban India.
Source: Indicus Research
Trends in Consumer Expenditure - Urban India
The urban regions estimated to record the highest increase in consumer expenditure (dark greens,
above 12%) from 2006-07 to 2008-09 include
• Areas around Delhi (parts of Haryana, Punjab, UP and Rajasthan) in North India
• Areas around Chennai and Bangalore in South India
• Most of North East, Orissa , Jharkhand , and Chhatisgarh in East India
• Gujarat, parts of Maharashtra in West India
Regions expected to register low growth include most of Rajasthan, MP, UP, Bihar (dark reds, below
8%)

The diagram depicts growth in consumer expenditure for urban areas of districts between 2006-07 and
2008-09. Source: Indicus Research