Consumer durables sector's growth continues: Business Line

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There is a visible slowdown in IIP (index of industrial production); from 15-16 per cent growth at the beginning of this fiscal, this index's growth is down to 3.7 per cent in January 2011. But do you know that the IIP for consumer durables is still robust with a growth of 23.3 per cent recorded in January? After a moderation in November on de-stocking of inventories (in the festival time) by manufacturers, the index is back on its double-digit growth.

In absolute terms, the consumer durables index was at 645 in January 2011, very close to the all-time high of 680 recorded last October. This index has been on a high growth trail in the range of 20-30 per cent since January last year. This is much higher than the growth in the main IIP index that grew between 3 and 17 per cent in the same period.

Now, will this growth momentum continue? If monthly sales numbers of automobile manufacturers such as M&M and Maruti Suzuki, and consumer home appliance makers are considered, we can assume that growth will continue, but at a slightly moderate pace in the medium term. Rising inflation and increasing borrowing cost may temper demand (especially the replacement demand) to an extent. The consumer durable goods industry has a weight of 5.4 per cent only in IIP, explaining the low influence it has on the main index.

A LEAD INDICATOR?

The consumer durables industry peaks much before the IIP. It also tends to recover before the main index, once slowdown ends. Sample this: Fear of recession gripped the country in 2008 when IIP reported fall in its growth rate. But the consumer durables index was on a downward spiral from mid-2007 itself. And, post recession, the recovery was again slower in IIP. While the consumer durable index moved into a double-digit growth as early as April 2009, IIP moved into a double-digit growth only in October that year.

WHAT IS MOVING IT?

The consumer durables index has managed a higher double-digit growth in 2009 as well as 2010. The performance in 2009 cannot be taken too seriously owing to a low base in the previous year. However, the growth in 2010 is commendable as it has come on a higher base. The consumer durables industry recorded a similar high growth in 2004. IIP for consumer durables had aptly reflected this growth by expanding 29 per cent in September 2004 (against 11.8 per cent in the corresponding previous period).

Passenger cars, scooters and home appliances, that include washing machines, refrigerators, television sets and air-conditioners are heavy weight items in the IIP consumer durable index. Companies in the listed space such as Whirlpool of India, Bajaj Electricals, Maruti Suzuki and Tata Motors have shown strong sales growth (mainly on higher volumes) over the last year, supporting the trend drawn from the index. Buoyancy in consumer durables sales is a manifestation of rising purchasing power. Various fiscal stimuli given by government to lift the economy out of recession, the Sixth Pay Commission's bounty to workers and the revival in broader job market have all improved consumer spending levels.