Inflation puts pressure on Indian businesses as millions of rural people cut spending

ryanniesMay 20, 2022

Reuters

Krishna N. Das and Afterb Ahmed

New Delhi — Inflation surges have forced many poor Indians to curb spending, and bumper sales have recently been seen in March and April after a fierce heat wave surged demand for cooling products. Threatened to slow down companies such as Godrej Appliances.

The crisis in Ukraine and the turmoil in the global supply chain have caused prices to skyrocket around the world, but people in developing countries such as India could ruin a small budget even with a small increase in costs. there is.

“Demand began to decline in May,” Kamal Nandi, head of business for Godrej Appliances, one of India’s largest consumer electronics manufacturers, told Reuters. “These are early signs of the impact of inflation on discretionary spending.”

Demand from the mass segment “expanded” in March and remained strong in April, so the decline progressed rapidly, he added.

In April, India’s wholesale and consumer prices accelerated fastest in years, with central banks raising interest rates at an unscheduled policy meeting this month.

Godley, which manufactured India’s first home refrigerator in 1958, aims to raise prices as much as possible to offset commodity prices, but in the countryside, where two-thirds of India’s population of about 1.4 billion live. There are concerns that it may undermine the demand for India.

“We need to raise prices quarterly in the future, which will affect future demand,” he added, adding that product price increases far exceeded sticker prices.

The Godrage dilemma is well known to many Indian companies trying to balance margins and demand. This is a disturbing sign of the economy recovering in the last quarter after the COVID-19 pandemic.

Dabur India Ltd, a leading distributor of everything from shampoos and toothpastes to honey and fruit juices, said in a statement this month that demand is likely to remain weak in the coming quarters.

“The wallets of local consumers are being squeezed … consumption is being squeezed,” said CEO Mohit Malhotra. “I think it’s a very volatile situation as food prices and inflation don’t slow down.”

Hindustan Unilever Ltd, owner of brands ubiquitous in India such as Dove, Vaseline and Horlicks, said at the end of last month that volumes were declining rapidly, mainly in rural areas.

“Essentials take precedence over discretionary categories,” he added.

Priyanka Kishor, Head of Macro and Investor Services in India and South Asia for advisory firm Oxford Economics, said “the ability of companies to absorb high input costs is diminishing” across Asia.

US retailers Kohl’s Corp, Walmart Inc, and Target Corp have also warned that inflation will weaken consumers’ purchasing power.

Inflation headache

Inflation promised to be a major headache for Prime Minister Narendra Modi’s government this year and early next year, especially ahead of several Indian legislative elections in his western hometown of Gujarat. I am.

However, demand in Indian cities is holding up much better, some companies said.

Electronics retailer Vijay Sales is centered around the city, with March and April sales rising 30% to 40% from pre-pandemic levels to about a quarter this month. , The company’s director, Nilesh Gupta, told Reuters.

He said it may be because of easier access to funding, but trust among urban consumers has generally remained strong in recent months.

Voltas Ltd, a leading manufacturer of Tataconglomerate appliances, raised prices in the previous quarter, but provided incentives such as extended warranty and easy financing to maintain sales of products such as air conditioners and air coolers. Said that.

India’s largest car maker Maruti Suzuki and others have reported a long waiting list for some mid-market and premium models, but sales of entry-level products popular in small towns and villages are declining. ..

Rural economies are struggling to recover from last year’s wave of Delta infections, killing tens of thousands, infecting millions and burning millions of savings without health insurance.

Economist Kishore said inflation would have a headwind on fragile rural recovery.

“The downside risks to growth are piled up, the supply of intermediate goods from China is cut off, the global stagnation stress is exacerbated, and the financial situation is not easing,” she said.

India’s inflation could accelerate further as the rupee hits a record low against the dollar and the cost of imported raw materials rises, according to Godley’s Nandy.

“If this trend continues, even the demand for celebrations for the masses will be affected,” he said, referring to the fall vacation season.

(Report by Krishna N. Das and Aftab Ahmed, edited by Clarence Fernandez)