The short-lived festivities this season on the back of an economic slowdown led to a decline in production this October for the consumer durables sector. The Index of Industrial Production (IIP) data released by the government today reveals that the growth in the Rs 32,000 crore consumer durables was in the negative — down 3 per cent as against 9 per cent in October 2007.
The industry, however, is not surprised given the dip in buying sentiment of the consumers. This year has been a tough one for the durables industry given factors such as liquidity crunch, high raw material costs in the first half of the year and depreciating rupee, which led to a series of price hikes that in turn led to a dip in demand.
“At a time when the industry is reeling under pressure due to multiple factors, the slowdown in production does not come as a surprise. The industry has become more cautious in its approach given the economic crisis,” says Godrej & Boyce Chief Operating Officer (appliances division) George Menezes. On the other hand, the durables sector had contributed to the industrial output rebound in the months of July (12.3 per cent ) and September (13.1 per cent). Sector experts attribute the increase in production in these months to the festive season which follows them. Ahead of the festive season, “Manufacturers start scaling up production from July as a run-up to the festive season and hence, there is more production. But in the post-festive season, the demand is generally less hence manufacturers are cautious in production in order to rationalise inventory levels,” says Vivek Sharma, chief marketing officer, Philips Electronics India.
The festival season, which starts in August with Onam and ends in November with Diwali, is important for the industry – it records almost a third of its annual sales during these months. However, this year the festive season was only a month and a half long.
Anticipating a further decline in demand post Diwali, the manufacturers have adopted a conservative approach by going slow on production to avoid huge inventory pile-ups.
Despite the slowdown in demand this year, the average production for the April-October period this year grew 5.6 per cent as against a decline of 1.4 per cent in 2007. The industry experts attributed the trend to the improper weightage for certain goods in the indices and the increased import of premium products. For instance, the IIP still gives much weightage to slow-moving goods like black and white TVs, VCRs and tape recorders, and less to DVD players, set top boxes and LCDs that are seeing good demand.
Purnendu Kumar, associate vice-president, retail and consumer goods, Technopak KSA, reasons, “On the one hand, the IIP data does not follow a valid list of products under consideration, and on the other hand, many companies import products which do not figure in the data. Hence, the IIP data may not be a true reflection of the market.”
The industry, however, is optimistic about the government’s investment in inducing consumption by way of introducing farm waiver schemes, the sixth pay commission and now the cenvat cut. But even so, the industry has grown by only 7-9 per cent this year as against 18-20 per cent last year. On the other hand, consumer non-durables, which mainly comprise clothing and food, grew 6.4 per cent in April-October as against 9.7 percent a year ago.