At the root of India’s economic slowdown are tight-fisted consumers who are not willing to spend either because they are wary of tough times ahead, or they just don’t have the money to spend. Consumer behaviour at three varied levels of the income spectrum is an interesting lesson.
A hallmark scheme of the Modi government was the launch of the Pradhan Mantri Ujjwala Yojana (PMUY) in May 2016, aimed at lifting the poorest from the burden of using polluting fuels like cow dung cakes and wood. The scheme provided a free gas connection along with cylinder and stovepipe, but the refills had to be paid for.
It was initially seen as a huge success story with over 6 crore families shifting to LPG connections. However, recent data released by the Research Institute of Compassionate Economics (RICE) shows the scheme running aground.
The survey report, released in December 2018 and covering four states – Uttar Pradesh, Bihar, Madhya Pradesh and Rajasthan — revealed there was an initial rapid rise of gas connections covering 76 per cent of the households.
However, 98 per cent of the households continued to own a chullah too, and the surveyors found that only 27 per cent exclusively used the gas stove. A large chunk, 37 per cent, said they used both the gas stove and the chullah, while 36 per cent cooked entirely on the chullah.
Significantly, among those who had got ‘Ujjwala’ connections from the government for free, as many as 53 per cent had gone back exclusively to the chullah, while 32 per cent used both. The survey said the refilling the gas cylinder made up a huge proportion of their monthly income, and therefore the poorest either postponed buying a refill or abandoned gas usage altogether.
CAR AND HOME SALES
At the other end of the pool, it wasn’t that the creamy layer was spending freely. Car sales since last summer, facing poor demand, have been on a southward trajectory. The latest figures released by the Society of Indian Automobile Manufacturers (SIAM) show the sale of passenger vehicles in the year ended March 31, 2019, grew at just 2.7 per cent to 3.37 million units, making it the worst performance in the last five years. Car registrations for March 2019 have fallen 8 per cent compared to last year, and the industry sees limited growth of just 3-5 per cent over the next year.
Another consumer bell weather – residential housing – that has been crippled since the days of Lehman Brothers in 2008, has long since evaporated as a significant investment asset class. Now, even end-users are difficult to find. The February 2019 report of a property tracker, Liases Foras, showed that total sales across eight Tier-I cities had fallen by 1 per cent from 70,357 to 69,886 units for the quarter ended December 31, 2018, when compared to the immediate previous quarter. The worst performer was Delhi-NCR where sales fell 4 per cent.
INSECURITY
It is not sufficient for the government to hand out free gas connections and stoves, as we have seen in the ‘Ujjwala’ survey. Those owning the gas connections must have the money to buy their next refill. The survey also showed that cow dung cakes and wood came free; so did the household labour of women. If the Ujjwala scheme is to become a driver of growth, multiplying LPG production and the bottling industry, purchasing power has to find its way into the pockets of India’s 363 million very poor.
India needs to spend nearly $2 (Rs 140) per day per person or 10 per cent of GDP (Gross Domestic Product) to remove poverty, while rest of Asia-Pacific countries have to spend nearly $1 per day per person till 2030 to achieve Sustainable Development Goals (SDGs), says Nagesh Kumar, director of United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP).
On the other hand, the poor sales of cars and homes is another indicator of what the more relatively well-off feel about the country’s near-term prospects. Purchasing of a car (or even a two-wheeler) is not an immediate necessity and when a consumer puts that big-ticket money down, he is parting with his immediate surplus as well as committing to paying future EMIs as well. But, when he holds back and postpones that purchase, it means he is not sure about the future and not ready to part with his security cushion.
This is the story of the last four to five years, where consumers are either too poor or too insecure to spend. This is the challenge before the next government too.