#5 Sectors Affected by India's Consumption Slowdown
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The stock markets have cheered finance minister Nirmala Sitharaman’s decision to cut corporate tax rates. Investors have gained more than INR 1.33 trillion since the announcement was made last week. However, there are arguments both for and against the move.
While some believe that letting go INR 1.45 trillion of corporate tax will affect the fiscal math for the current financial year and deficit may go up to 4%, Sitharaman has assured that will not be case. She said expenditure secretary G.C. Murmu has been asked to ensure that PSUs front-load their capital expenditure to spur demand.
The move comes at a time when India’s gross domestic product growth rate is at a six-year low 5%, manufacturing growth has declined and various sectors are affected due to a slow down in consumption, the main driver of the Indian economy.
Here are five sectors which have been affected the most:
FMCG: When some of the biscuit makers talked about job losses due to fall in demand, the entire nation was taken aback. However, it turns out that the situation is not that grim and the entire episode was more about getting a GST rate cut for the sector. Nevertheless, companies such as Hindustan Unilever, Dabur India and Britannia Industries, among others, witnessed fall in volumes in the June quarter. These companies are mainly affected due to a fall in rural demand.
Automobiles: The much-anticipated cut in GST did not come for the automobile sector during the meeting of the GST Council in Goa last week, leaving manufacturers to fend for themselves. The sales of automobile companies have been declining for at least 13 months. While a slowdown in the economy is the prime reason for falling auto sales, other factors such as the country’s transition to BS VI norms and push towards electric vehicles have further affected sentiments.
Steel: High iron ore prices and weak demand have forced many steel makers to cut production as much by 50% in some cases. The steel sector also feels the pinch when auto makers go slow as this sector is the biggest client. In July, for the first time since December, 2017, steel prices went below INR 40,000 per tonne, making it unviable for steel manufacturers.
Consumer Durables: If FMCG is affected, how can consumer durables remain far behind. Sale of televisions, washing machines and other white goods have gone down just before the festive season. Makers of consumer durables have are clamouring for cut in GST rates. As a reprieve, the government last week scrapped import duty on open cell LED panels which accounts for 60-70% of the cost of televisions.
Real estate: The housing real estate market was already under pressure as non-delivery of projects became a huge menace and the government had to step in. With RERA rules applicable in various states, builders are now finding it tough to lure customers as penal provisions have become stiff. With the slowdown kicking in, consumers are uncertain about future income and are reluctant to make buying decision just yet.