Tuesday, January 17, 2017

India's consumption demand to fall by 4% in second half of 2016-17, 48% of workforce lost incomes: CMIE

By Our Representative
India's authoritative data collection and analysis firm, Centre for Monitoring Indian Economy (CMIE), has predicted that the consumption demand will drop by a whopping 4% in the second half of 2016-17, thanks to the “shock” of a sudden withdrawal of 86% of liquidity on November 8, 2016.
While the impact was “immediate” because the old currency notes lost their legal-tender status, CMIE says, it has had “a simultaneous impact on household earnings as a significant chunk of labour had to forego wages to exchange currency notes at cash-starved banks.”
Thus, it says, “48% of the work-force has lost incomes. Daily wage labourers, who form the largest chunk of this section, account for 25% of the workforce. Self-employed entrepreneurs, small traders and hawkers that also are a part of this section, form a smaller 8% of the work force”, who suffered “a bigger hit as both, their wages and businesses were severely hit by demonetisation.”
“Similarly”, says CMIE, “Businessmen and organised farmers who account for the remaining 15% of the workforce suffered a substantial loss of business because of demonetisation”, adding, this apart, those who have suffered, but to a lesser degree, include the salaried classes, accounting for about 25% of the total work force.
“This impact of lost wages, broken supply chains and lost businesses will be lasting”, says CMIE, adding, “The relatively vulnerable sections will have dug into savings or incurred debts to meet at least their necessary expenses during the initial days of extreme shortage of liquidity. Jobs lost along the supply chain will take time to be repaired and again savings will have been drawn down.”
While the overall economic performance was “robust” in November, “there were no disruptions”, with the electricity generation going up up 8.9%, petroleum production consumption up by 12.1%, domestic passenger air traffic up 22%, and railway freight traffic up by 5.5%, CMIE says, things turned worse in December.
It says, “The fall seen in automobile sales shows that a reasonably-performing economy was stalled by demonetisation. Domestic automobile sales recorded their steepest fall in last 16 years (18.7%) in December. ”
“The impact of the disruption in consumption caused by demonetisation is best seen in the public statements from consumer durable companies”, says CMIE, rolling out following examples:
  • Britannia Industries' sales were 30-70% of what they were doing earlier, reducing production has been reduced by 15-20%.
  • Parle Products' sales in November were 10-12% lower than in November last year. 
  • Dabur's sales were down 20% over earlier week, with supply chain down-stocking and production being calibrated. 
  • Emami's cut production across categories since consumers postponed purchases. 
  • Bikano reduced production by 10-15%. 
  • Voltas' demand in Tier-III and Tier-IV towns went down by 50%; in bigger towns' demand was down 25-30%. 
  • Panasonic's business was down 40% in November and December.
  • Godrej Appliances' business was down 40% in November, lost two months, production cut 15%.
“After such a sharp fall, consumption is unlikely to bounce back easily”, says CMIE, adding, “This is because most of the cuts are in discretionary spending items and not in staple diets. As the liquidity constraint drags over several months, consumption of these discretionary items is likely to settle to a lower level.”
Estimating that the growth in real private final consumption expenditure would fall to 3.5% in the December 2016 quarter, CMIE predicts, “Growth will improve a little thereafter but will remain lower.”

No comments: