FM's festival dhamaka may not fire up retail growth

Intent is good but has it come too late

Finance Minister P Chidambaram and RBI governor Raghuram Rajan are preparing for the festival season. Top of their to-do list is providing banks with money so that they in turn can provide consumers with money to buy goodies. The idea behind it is to propel growth.

 

Well it’s a bad idea and will not help. Like everything these days, here are five reasons why it is such a bad idea.

 

1.       The govt plans to shell more funds apart from the Rs 14,000 crore earlier earmarked to be given to public sector banks. This they expect will help them lend more at lower interest rates to people interested in buying two-wheelers and select consumer durables. Well, how many of us have seen financing schemes of public sector banks (except for SBI in some cases) at the auto showrooms or electronic shops. It is either the private sector banks or nan-banking finance companies who have captured the market. Giving money to public sector banks will only end up in more decorative lights at their branches.

 

2.       Buying pattern is not influenced so much by interest rates as they are by the goods and ease of getting the goods. Public sector banks almost make you write a book before giving a loan. A small change in interest rate will have minimum change on a per month basis.

 

3.       Financing schemes like zero interest finance were instrumental in attracting customers. With no such schemes available this season, consumer companies had complained that their sales will be affected this festive season. And they will. Cheap loans are not as appealing as a zero per cent interest scheme, despite the financial jugglery behind it, which in any case the consumer never understood.

 

4.       CIBIL rating has made finance difficult for those who actually need it. While it is a necessary evil, in the current tough environment, some relaxation is needed there.

 

5.       Who will make the down payment needed for availing the loan? With unemployment on the rise and inflation eating away most of the earnings, very little is left by way of savings. This is reflected in the deposit data provided by RBI. Where will an individual generate enough money to buy a luxury item at a time when he is facing difficulty financing his necessities.

 

That however, does not stop us from wishing you a very happy festive season.

 

As for FM and Rajan, all we can say is well tried. 

 

But these moves a month earlier would have helped companies in planning and rolling out schemes.