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India's Third Giant Leap

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Can 1.2 bn people save the economy?
Thu, 22 Dec Pre-Open

One thing that India always had going for itself was its large population. The consumption needs of India's billion plus were supposedly enough to help sustain the nation. But are they really? India has been hit by bad news after bad news. Slowing GDP, lower credit offtake, and dismal IIP numbers have all disappointed markets. And now, even domestic consumption seems to have taken a turn for the worse.

Now that the festival season is drawing to a close, consumption trends have reversed. According to an article in Firstpost based on a survey by Emkay Global, inventory seems to be moving slower than usual. This is an indication of lower demand. Many popular goods in the fast moving consumer goods (FMCG) basket were tracked. The findings of the survey proved that manufacturing dates of most products was about 2.5 months old. Only milk and noodles seem to be moving quickly with recent manufacturing dates of 1.5-2 months. However, this survey was only conducted in Mumbai. With a large metro like Mumbai seeing slower consumption, the situation in smaller cities may be even worse. Even the jobs scenario has deteriorated with a worsening external environment.

Even rural areas don't seem to be in the best shape. Agricultural credit is at a decade low. Plus, agricultural non-performing assets (NPAs) have also grown. Even FMCG companies are seeing slower growth in their rural counters. Plus minimum support crop prices and spending on National Rural Employment Guarantee Act (NREGA) are not up to the mark.

Indian consumers, too, seem to be running for cover. They are not stepping out and spending as much as the economy would like them to. While this works well for their end of the month cash balances, for corporates it is another story. Companies were betting on the second half of this financial year 2011-12 (FY12) in order to counter their dismal performance in the first half. But with domestic consumption slowing, this may be a tough task for them to achieve.

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