We are in “The Age of consumerism” and that “Customer is King” sounds so hackneyed. The retail loan boom not only made the “dream home” come true for many but gave such a unusual fillip to middle-class ‘wants’ that analysts often cite the robust domestic ‘demand’ for all products & services which make India a unique market, globally.
Just how much of that new fangled demand is a sign of the ‘coming of age of India’ and hence, sustainable, is a question that begs to be asked, now, as like never before in the ‘glorious’ past 4-5 years. Perhaps, what also needs to be addressed in the same breath is the issue of standards of business practices, regulatory framework and laws providing protection to anybody – consumer or provider, whoever finds himself at the receiving end of unfair practices.
The phenomenon of easy availability of affordable retail loans, since the beginning of this decade, was seen as the single largest driver to the resurgence of the Indian economy from the slump it faced towards the middle to late ‘90s. Industries across the board - housing & construction, autos, consumer durables etc., have never seen better times.
This boom also created its share of problems – rising shortage of inputs in the face of burgeoning demand - skilled manpower, raw materials, power etc., all of this led to huge increases in the costs of all inputs, leading to inflationary pressures which forced policy makers, to take steps to check the factors which created the problem – Alas, credit is not cheap or easily available anymore!
Rise in prices had eroded ‘affordability’. While at the corporate level, the ‘difficulty’ was dealt with an ‘indifference’ or ‘helplessness’, at the individual level it became ‘nightmarish’. Imagine, a young professional and ‘well to do’ individual with a monthly income of more than a lakh of rupees, not being able to afford a modest 2 bed room flat in the suburbs of Mumbai!
As all things which tend to go up – whether it is yo-yos or water in a fountain – the stock markets which had gone up by more than 7 times between October 2001 to January 2008 – kept coming down without a bottom in sight, based on economic concerns, both local and global.
Globally, stock markets are seen as ‘lead indicators’ – they tend to fall or rise, earlier than the underlying problems or positives unfold, respectively. So even if the Indian stock markets fell by 60%, the manufacturers and service providers were still pondering – Are things really that bad? – They were in ‘denial’. So prospective consumers of goods and services thought, “Let me defer my purchase!”
As ‘push came to shove’, the clamor for a Government backed Bailout gained in strength – “after all, if that is in vogue in the US, how can India be behind?” Though India continues to lag behind the US in so many parameters – education, health, infrastructure – just to name 3 key areas.
Act I. - The bailout was announced by the Finance Minister – “All PSU banks have agreed to interest rate-cuts”. Confirmation soon followed by the banks, almost all the top PSU banks made announcements to that effect within 72 hours.
Act II. – A friend of mine who recently shifted his housing loan from a private bank (this bank had hiked the rate of interest a record 4 times during the period of October 2006 to June 2007) to a PSU bank, called up his banker (PSU) to ‘confirm the good news of rate cuts’.
He got a ‘rude shock’!
The banker explained, that, though, there is a change in the benchmark prime lending rate or BPLR, the pricing* (Price = BPLR +/- Spread) has also simultaneously been changed, effectively neutralizing the rate-cut. To simplify, e.g. if BPLR was initially 14% and the spread was (-) 2.5%, price was 11.5%. Now with the new BPLR = 13.25%, price instead of being 13.25% - 2.5% = 10.75% remains at 11.5% because the spread has been reduced from (-) 2.5% to (-) 1.75%. The friend believed that the ‘pricing’ of his loan vis-à-vis the prevailing BPLR was ‘fixed’ for the tenor of the loan.
The lesson to learn, from this small anecdote is that while, as a class Indian consumers are buying goods & services like never before, it is important that we do so with ‘due diligence’ as Caveat emptor (Latin for ‘Let the buyer beware’) puts the onus squarely on the ‘buyer’ to understand all relevant terms & conditions of the ‘sale’.
Also, this requires due attention from manufacturers & service providers (which in this case, includes the Govt. also!) – in terms of the quality of the product, its price and the after-sales standards. The law makers and the law keepers would also need to play a key role in proper regulation and defining the appropriate standards, as also ensure speedy resolution of complaints through investigation and imposition of suitable deterrents for ‘proven’ offenders.
If addressed with due care, the level of consumer confidence in Indian ‘brands’ will go up significantly - a leading bank should take note that its actions on a daily basis is more important than a 1 minute clip with a Bollywood-Badshah, trying to convince us about why he trusts the bank; and, in troubled times like these, they can make all the difference between the ‘worsening’ of the current slowdown and the resurgence of consumer and business confidence which can definitely help India shield itself from the global crises.
The superiority of the US economy is best understood by the numerous ‘global brands’ the country can boast of and make no mistake that it is the long standing and highly established reputations of these brands which have created “VALUE” as also, investing folklore and investing legends, in the long run.
Just how much of that new fangled demand is a sign of the ‘coming of age of India’ and hence, sustainable, is a question that begs to be asked, now, as like never before in the ‘glorious’ past 4-5 years. Perhaps, what also needs to be addressed in the same breath is the issue of standards of business practices, regulatory framework and laws providing protection to anybody – consumer or provider, whoever finds himself at the receiving end of unfair practices.
The phenomenon of easy availability of affordable retail loans, since the beginning of this decade, was seen as the single largest driver to the resurgence of the Indian economy from the slump it faced towards the middle to late ‘90s. Industries across the board - housing & construction, autos, consumer durables etc., have never seen better times.
This boom also created its share of problems – rising shortage of inputs in the face of burgeoning demand - skilled manpower, raw materials, power etc., all of this led to huge increases in the costs of all inputs, leading to inflationary pressures which forced policy makers, to take steps to check the factors which created the problem – Alas, credit is not cheap or easily available anymore!
Rise in prices had eroded ‘affordability’. While at the corporate level, the ‘difficulty’ was dealt with an ‘indifference’ or ‘helplessness’, at the individual level it became ‘nightmarish’. Imagine, a young professional and ‘well to do’ individual with a monthly income of more than a lakh of rupees, not being able to afford a modest 2 bed room flat in the suburbs of Mumbai!
As all things which tend to go up – whether it is yo-yos or water in a fountain – the stock markets which had gone up by more than 7 times between October 2001 to January 2008 – kept coming down without a bottom in sight, based on economic concerns, both local and global.
Globally, stock markets are seen as ‘lead indicators’ – they tend to fall or rise, earlier than the underlying problems or positives unfold, respectively. So even if the Indian stock markets fell by 60%, the manufacturers and service providers were still pondering – Are things really that bad? – They were in ‘denial’. So prospective consumers of goods and services thought, “Let me defer my purchase!”
As ‘push came to shove’, the clamor for a Government backed Bailout gained in strength – “after all, if that is in vogue in the US, how can India be behind?” Though India continues to lag behind the US in so many parameters – education, health, infrastructure – just to name 3 key areas.
Act I. - The bailout was announced by the Finance Minister – “All PSU banks have agreed to interest rate-cuts”. Confirmation soon followed by the banks, almost all the top PSU banks made announcements to that effect within 72 hours.
Act II. – A friend of mine who recently shifted his housing loan from a private bank (this bank had hiked the rate of interest a record 4 times during the period of October 2006 to June 2007) to a PSU bank, called up his banker (PSU) to ‘confirm the good news of rate cuts’.
He got a ‘rude shock’!
The banker explained, that, though, there is a change in the benchmark prime lending rate or BPLR, the pricing* (Price = BPLR +/- Spread) has also simultaneously been changed, effectively neutralizing the rate-cut. To simplify, e.g. if BPLR was initially 14% and the spread was (-) 2.5%, price was 11.5%. Now with the new BPLR = 13.25%, price instead of being 13.25% - 2.5% = 10.75% remains at 11.5% because the spread has been reduced from (-) 2.5% to (-) 1.75%. The friend believed that the ‘pricing’ of his loan vis-à-vis the prevailing BPLR was ‘fixed’ for the tenor of the loan.
The lesson to learn, from this small anecdote is that while, as a class Indian consumers are buying goods & services like never before, it is important that we do so with ‘due diligence’ as Caveat emptor (Latin for ‘Let the buyer beware’) puts the onus squarely on the ‘buyer’ to understand all relevant terms & conditions of the ‘sale’.
Also, this requires due attention from manufacturers & service providers (which in this case, includes the Govt. also!) – in terms of the quality of the product, its price and the after-sales standards. The law makers and the law keepers would also need to play a key role in proper regulation and defining the appropriate standards, as also ensure speedy resolution of complaints through investigation and imposition of suitable deterrents for ‘proven’ offenders.
If addressed with due care, the level of consumer confidence in Indian ‘brands’ will go up significantly - a leading bank should take note that its actions on a daily basis is more important than a 1 minute clip with a Bollywood-Badshah, trying to convince us about why he trusts the bank; and, in troubled times like these, they can make all the difference between the ‘worsening’ of the current slowdown and the resurgence of consumer and business confidence which can definitely help India shield itself from the global crises.
The superiority of the US economy is best understood by the numerous ‘global brands’ the country can boast of and make no mistake that it is the long standing and highly established reputations of these brands which have created “VALUE” as also, investing folklore and investing legends, in the long run.
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