Will financial stimulus boost consumption?
Around 65% of services are dependent on petrol/diesel. Marketers are bound to look at their costing and pass it on to consumers. India battles crisis | Stimulus package
By Namrata Singh & Amrita Nair-Ghaswalla, TNN |
MUMBAI: Sunday's fiscal package , which Planning Commission deputy chairman Montek Singh Ahluwalia called a 'psychological stimulus', clearly boosted India Inc's sentiment. But, between rekindling hope and an actual improving consumer demand, lies a wide chasm. The question on everybody's lips, therefore, is: will the stimulus package finally boost consumption?
Damodar Mall, group customer director at Future Group, tries to read the tea leaves: "The sops announced will move consumer's fears over inflation two notches down. Once the sense of inflation moving down becomes real in the mind of the consumer, it will spur sales." At the moment, the customer is intuitively defensive, said Mall. But, if inflation recedes, it would have a positive impact on household expenditure budgets too. And, that is expected to translate into higher consumption.
According to Mahesh Vyas, MD & CEO, Centre for Monitoring Indian Economy: "The stimulus would help in improving business sentiment, in providing a kind of a reassurance that the economy would not go into a tailspin."
This would, in turn, help in perking up consumption expenditure. According to Vyas, it is unlikely that this would have any significant impact on the negative sentiments regarding new investments. "Corporates are likely to wait and see the impact of these announcements and other developments before they consider new investment projects. The pace of implementation of existing projects is likely to recover following these announcements," said Vyas.
Clearly, for the corporate world which was in a state of freeze, a thawing process might have begun. A Mahendran, director, FMCG promotion cell, Godrej Group, said: "If the government comes up with more such packages, we would probably be able to bounce back within a year or so to where our consumption levels were six-eight months ago."
According to Harish Bijoor of Harish Bijoor Consultants, there are two parts to the fiscal package which could boost consumption with prices set to come down. One is the Rs 30,700-crore stimulus package, and the other is reduction in petrol and diesel prices, though the latter does not come under the ambit of the sops unveiled by the government on Sunday.
"Both aspects will curb inflation. Since every service is dependent on transportation, this will be a cascading effect. Around 65% of services are dependent on petrol/diesel. Marketers are bound to look at their costing and pass it on to consumers. This will ensure cheaper goods of all kinds and services," said Bijoor.
Damodar Mall, group customer director at Future Group, tries to read the tea leaves: "The sops announced will move consumer's fears over inflation two notches down. Once the sense of inflation moving down becomes real in the mind of the consumer, it will spur sales." At the moment, the customer is intuitively defensive, said Mall. But, if inflation recedes, it would have a positive impact on household expenditure budgets too. And, that is expected to translate into higher consumption.
According to Mahesh Vyas, MD & CEO, Centre for Monitoring Indian Economy: "The stimulus would help in improving business sentiment, in providing a kind of a reassurance that the economy would not go into a tailspin."
This would, in turn, help in perking up consumption expenditure. According to Vyas, it is unlikely that this would have any significant impact on the negative sentiments regarding new investments. "Corporates are likely to wait and see the impact of these announcements and other developments before they consider new investment projects. The pace of implementation of existing projects is likely to recover following these announcements," said Vyas.
Clearly, for the corporate world which was in a state of freeze, a thawing process might have begun. A Mahendran, director, FMCG promotion cell, Godrej Group, said: "If the government comes up with more such packages, we would probably be able to bounce back within a year or so to where our consumption levels were six-eight months ago."
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According to Harish Bijoor of Harish Bijoor Consultants, there are two parts to the fiscal package which could boost consumption with prices set to come down. One is the Rs 30,700-crore stimulus package, and the other is reduction in petrol and diesel prices, though the latter does not come under the ambit of the sops unveiled by the government on Sunday.
"Both aspects will curb inflation. Since every service is dependent on transportation, this will be a cascading effect. Around 65% of services are dependent on petrol/diesel. Marketers are bound to look at their costing and pass it on to consumers. This will ensure cheaper goods of all kinds and services," said Bijoor.
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