It appears that Indian households have become close-fisted in spending to the extent of creating speed-breakers in the growth story of a variety of consumer durables. This is unlike the recent phenomenon reported in China, where consumer expenditures are only partially captured in official statistics that still position fixed asset investment as the prime driver of growth. In India, consumption expenditure (government, private companies and households together) continues to contribute around 61% to the GDP. But one must appreciate the fact that if imported substitutes are preferred over their Indian counterparts in many areas of the consumer durables market, the health of specific consumer goods in the domestic market may suffer even as there is anincrease in the expenditure pattern.
Over April-February 2013, the automobile sector has grown by 2.2%. The total number of passenger cars sold was 4.6% lower than that in the previous year. Private consumption expenditure during the year reached R3.5 million crore against R3.3 million crore last year. This disconnect between these seemingly related factors needs a detailed look to evaluate if sales by new auto majors assembling CKD and SKD kits in India, and by those directly producing them at Indian plants, have gone up. Any confirmation of this trend would signal a substitution of indigenous production by imports and take the blame away from a decline in household consumption expenditure. At 7.9 million tonne, steel imports in 2012-13 registered growth of around 15% over the last year to drive total steel consumption to 73.3 million tonne. However one must distinguish between passenger cars, sports cars, two-wheelers and tractors, which are meant for household use, and commercial vehicles, utility vehicles and three-whelers, which are not meant for personal use.
Recent studies have shown that around 10-11% of the country?s steel consumption is accounted for by the consumer durables segment, of which automobiles occupy a major share. In the absence of any government subsidy, the market-determined prices of petrol and diesel have taken the running costs of vehicles beyond the reach of households, and it has encouraged people to share vehicles among themselves and rely on public transport.
If the low-demand-and-low-supply scenario persists in the coming years, dwindling steel consumption in this sector must be compensated by other sectors such as construction, machinery and equipment, packaging and other transport sectors. This, however, poses a challenge to the fresh capacities in steel being created in India to cater to the requirements of auto body sheets. The natural corollary of this phenomenon lies in raising the share of investment or capital expenditure in infrastructure and higher growth in manufacturing and other processing industries. The recent activities of the Cabinet Committee on Investment raise hopes that impediments in execution of stalled mega projects would be gradually taken care of by taking the various challenges by the horns.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal