Inflation weighs on Indian businesses as millions of rural people cut spending


Rahul Jain (R), a trader selling groceries, looks on as he waits for customers at Kasan village in Manesar, northern state of Haryana, India, Aug 11, 2019. REUTERS/Anushree Fadnavis

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  • Inflation at its highest for several years
  • Companies say soaring input costs are forcing price hikes
  • Price hikes begin to crush demand in the countryside

NEW DELHI, May 20 (Reuters) – Soaring inflation is forcing many poor Indians to curb spending, threatening a slowdown for companies such as Godrej Appliances, which posted bumper sales in March and April after a wave of brutal heat that drove up demand for its cooling products. .

The Ukraine crisis and global supply chain disruptions have driven up prices around the world, but people in developing countries like India are more vulnerable to even small cost increases that can wipe out their meager budgets.

“From May, we started to see a drop in demand,” Kamal Nandi, commercial director of Godrej Appliances, one of India’s largest home appliance makers, told Reuters. “These are the first signs of an inflationary impact on discretionary spending.”

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The fall came quickly after demand from the mass segment “increased” in March and remained strong in April, he added.

India’s wholesale and consumer prices accelerated to their fastest pace in years in April, prompting the central bank to raise interest rates at an unscheduled policy meeting this month, with a another probably next month. Read more

Godrej, who made India’s first domestic refrigerator in 1958, aims to raise prices where possible to offset commodity costs, but concerns could erode demand in the countryside which is home to two-thirds of India’s population of nearly 1.4 billion.

“Going forward, every quarter there has to be a price increase and that will impact demand down the line,” added Nandi, who said commodity price increases had far outpaced prices displayed.

Godrej’s dilemma is familiar to many Indian companies trying to balance margins and demand, a worrying sign for the economy which had been recovering in recent quarters from being hammered by the COVID-19 pandemic. .

Dabur India Ltd (DABU.NS), a big seller of everything from shampoos and toothpaste to honey and fruit juices, said on an earnings call this month that demand was likely to remain weak over the next next quarters.

“There is a compression in the wallet of the rural consumer…there is a compression in consumption,” chief executive Mohit Malhotra said. “I think it’s a wait and watch situation, which is very volatile as food prices and inflation don’t go down.”

Hindustan Unilever Ltd (HLL.NS), owner of brands seen across India such as Dove, Vaseline and Horlicks, said late last month that volumes were declining rapidly, mainly in rural areas.

“Essential items take priority over discretionary categories,” he added.

Across Asia, companies’ “ability to absorb high input costs is shrinking,” said Priyanka Kishore, head of macro and investment practice for India and South Asia at consultancy Oxford. Economics.

U.S. retailers Kohl’s Corp (KSS.N), Walmart Inc (WMT.N) and Target Corp (TGT.N) also warned of inflation that would weaken consumers’ purchasing power. Read more

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Inflation promises to be a major headache for Prime Minister Narendra Modi’s government ahead of elections for several Indian state assemblies this year and early next, especially in his home state of Gujarat. .

But demand in Indian cities has held up much better, several companies said.

Electronics retailer Vijay Sales, with city-centric operations, saw sales jump 30% to 40% in March and April from pre-pandemic levels to rise by around a quarter this month- ci, its director, Nilesh Gupta, told Reuters.

Easier access to finance could be one reason, he said, but urban consumer confidence has generally remained strong in recent months.

Voltas Ltd (VOLT.NS), a major appliance maker in the Tata conglomerate, said it raised prices last quarter but is offering incentives such as extended warranties and easy financing to keep sales of products such as air conditioners and air coolers.

India’s biggest automaker Maruti Suzuki (MRTI.NS) and others report long waiting lists for some midrange and high-end models, but sales of popular entry-level products in small towns and villages are down. Read more

The rural economy has struggled to recover from last year’s delta wave of infections that killed tens of thousands, infected millions and burned through the savings of millions without health insurance .

Inflation poses additional headwinds for the fragile rural recovery, economist Kishore said.

“Downside risks to growth are mounting, with disruptions in the supply of intermediate goods from China, worsening global stagflationary tensions and monetary conditions becoming less accommodative,” she said.

As the rupee slumps to record lows against the dollar, driving up the costs of imported raw materials, inflation in India could accelerate even further, Nandi de Godrej said.

“If this trend continues, even festive demand will be affected for the mass segment,” he said, referring to the fall holiday season.

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Reporting by Krishna N. Das and Aftab Ahmed; Editing by Clarence Fernandez

Our standards: The Thomson Reuters Trust Principles.

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