Forget IIP, consumer durables are rocking
The consumer durables industry is alive and kicking, contrary to the tale of decline told by the index of industrial production (IIP) figures for July.
By Vivek Sinha, TNN |
NEW DELHI: The consumer durables industry is alive and kicking, contrary to the tale of decline told by the index of industrial production (IIP) figures for July.
The durables industrial segment, comprising TVs, refrigerators, washing machines and airconditioners, is rocking with double-digit growth across product categories. What’s more, certain categories are actually showing a rebound in demand after a relatively quiet 2006.
The latest IIP figures for July had shown a decline in the consumer durable industry by 3.2% as against a 7.1% growth in the general index.
This had set off alarm bells as the durable industry serves as an indicator of consumer demand. Says LG Electronics vice-president, manufacturing Sanjay Arora, “The figures comes as a surprise to us as we have grown by about 10% in the manufacturing side in July. I can’t think of any possible explanation for a decline at the macro level unless it is the small manufacturers who are affected.” LG is the largest player in the consumer durables market.
The disconnect, as ET discovered, has three sources: outdated product categories in the IIP, weightages for product categories that are out of sync with market realities and a statistician’s definition of consumer durables that is at variance with the definition that resonates with either the trade or the public.
According to the popular definition, ‘consumer durables’ consist of consumer electronics and white goods. However, these two categories constitute less than one-fifth of the consumer durables basket, as classified by the government. Passenger cars, two-wheelers and tyres account for around 40% of the consumer durable basket with type writers, watches, clocks, sewing machines, and other sundry items accounting for the rest.
Further, the index does not take into account some new categories of products which have become sizeable with the consumer durable market — for example, DVD players, whose market is pegged at about 5-6 million units, a substantial part of which is manufactured locally. Microwave ovens sell more than half-a-million units but are absent from the index.
This is not all. The index gives a high weightage to small-ticket items. For instance, the index assigns a weightage of 0.12 to window air conditioners, and none to split air conditioners. Today, split air conditioners account for 55% of total air conditioners sold in unit terms and 65% in value terms. This means the index is not taking into account the bigger chunk of the air conditioner market which is also growing at a faster rate than mass window air conditioners. And air conditioners deserve a much larger weightage than, say, typewriters, which still are accorded a weight of 0.28, more than twice that for air conditioners.
This is not entirely unexpected, as the index has a base year of 1993-94 when many of new product categories were either not available or manufactured in the country, including DVD players.
The use-based classification of the IIP has only five items in the consumer durables basket which form part of what constitutes consumer durables in common parlance — television, refrigerators, washing machines, window type airconditioners and tape recorders. The total cumulative weightage of these items is a mere 8.84 out of the total 53.6 points weightage given to the consumer durable sector which, in turn, is about 5.3% of the overall index.
As far as consumer electronics and white goods industry is concerned the market is on a double digit growth path. In fact the refrigerators market which has been sluggish with about 5% average growth over the last few years is estimated to be clocking 10-12% growth this year.
Washing machines, which moved from a low growth rate to the double-digit growth level in 2006, are also reporting a continuation of the 10%-plus growth. In addition, the colour television (CTV) industry in the manufacturing side has got an additional boost this year with the large state government tender from Tamil Nadu where small sized televisions are being distributed by the state government.
Early this year, supply orders of 2.5 million units were given out of which about 2 million has already been supplied. The state government has just issued another global tender for an additional 3 million units of CTVs which would be supplied by early next year.
While these are one time growth push, the industry is also looking forward to a robust growth in demand. In total the industry is expecting a market of 14 million units of CTV this year as against 11.75 million during 2006 as a calendar year.
The durables industrial segment, comprising TVs, refrigerators, washing machines and airconditioners, is rocking with double-digit growth across product categories. What’s more, certain categories are actually showing a rebound in demand after a relatively quiet 2006.
The latest IIP figures for July had shown a decline in the consumer durable industry by 3.2% as against a 7.1% growth in the general index.
This had set off alarm bells as the durable industry serves as an indicator of consumer demand. Says LG Electronics vice-president, manufacturing Sanjay Arora, “The figures comes as a surprise to us as we have grown by about 10% in the manufacturing side in July. I can’t think of any possible explanation for a decline at the macro level unless it is the small manufacturers who are affected.” LG is the largest player in the consumer durables market.
The disconnect, as ET discovered, has three sources: outdated product categories in the IIP, weightages for product categories that are out of sync with market realities and a statistician’s definition of consumer durables that is at variance with the definition that resonates with either the trade or the public.
According to the popular definition, ‘consumer durables’ consist of consumer electronics and white goods. However, these two categories constitute less than one-fifth of the consumer durables basket, as classified by the government. Passenger cars, two-wheelers and tyres account for around 40% of the consumer durable basket with type writers, watches, clocks, sewing machines, and other sundry items accounting for the rest.
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Further, the index does not take into account some new categories of products which have become sizeable with the consumer durable market — for example, DVD players, whose market is pegged at about 5-6 million units, a substantial part of which is manufactured locally. Microwave ovens sell more than half-a-million units but are absent from the index.
This is not all. The index gives a high weightage to small-ticket items. For instance, the index assigns a weightage of 0.12 to window air conditioners, and none to split air conditioners. Today, split air conditioners account for 55% of total air conditioners sold in unit terms and 65% in value terms. This means the index is not taking into account the bigger chunk of the air conditioner market which is also growing at a faster rate than mass window air conditioners. And air conditioners deserve a much larger weightage than, say, typewriters, which still are accorded a weight of 0.28, more than twice that for air conditioners.
This is not entirely unexpected, as the index has a base year of 1993-94 when many of new product categories were either not available or manufactured in the country, including DVD players.
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According to Consumer Electronic and Appliances Manufacturers’ Association secretary general Suresh Khanna, “Feedback from our members indicates that the industry is reporting good growth across product categories. In fact, home appliances, which had been growing at a slow pace in the past, is also showing more than 10% growth. We are unable to understand where the slowdown is.”The use-based classification of the IIP has only five items in the consumer durables basket which form part of what constitutes consumer durables in common parlance — television, refrigerators, washing machines, window type airconditioners and tape recorders. The total cumulative weightage of these items is a mere 8.84 out of the total 53.6 points weightage given to the consumer durable sector which, in turn, is about 5.3% of the overall index.
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One of the reasons for the decline in consumer durable as categorised in the IIP could be the heavy weightage given to the auto and auto related sector. Therein, 9.5 points or about 17% weightage within the consumer durable category is given solely to two-wheelers which has reported a decline during the month.As far as consumer electronics and white goods industry is concerned the market is on a double digit growth path. In fact the refrigerators market which has been sluggish with about 5% average growth over the last few years is estimated to be clocking 10-12% growth this year.
Washing machines, which moved from a low growth rate to the double-digit growth level in 2006, are also reporting a continuation of the 10%-plus growth. In addition, the colour television (CTV) industry in the manufacturing side has got an additional boost this year with the large state government tender from Tamil Nadu where small sized televisions are being distributed by the state government.
Early this year, supply orders of 2.5 million units were given out of which about 2 million has already been supplied. The state government has just issued another global tender for an additional 3 million units of CTVs which would be supplied by early next year.
While these are one time growth push, the industry is also looking forward to a robust growth in demand. In total the industry is expecting a market of 14 million units of CTV this year as against 11.75 million during 2006 as a calendar year.
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