As Coronavirus lurks, Indians save wealth for health – The Economic Times

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Companies and financial experts said that prospective customers are diverting funds that could have gone into the purchase of discretionary items toward unforeseen emergency and health-related expenses.



WorldIndiaIndian consumers, both urban and rural, are storing cash for emergency medical needs, deferring big-ticket discretionary expenses through the surging covid wave that is taking a toll on lives and livelihoods.

Companies and financial experts said that prospective customers are diverting funds that could have gone into the purchase of discretionary items toward unforeseen emergency and health-related expenses.

Through the first wave last summer, several consumer appliances moved from the ‘discretionary’ bucket to the ‘essentials’ category, said Kamal Nandi, business head, Godrej Appliances.

“Now the mindset is to conserve cash. But as covid cases go down and things become normal, spending on this category will see an upward trend,” Nandi said.

Currency with the public rose 16% to an all-time high of Rs 4 lakh crore, while bank deposits surged by more than Rs 20 lakh crore between March 2020 and April 2021, double that of last year. Rural demand, which was at the vanguard of private consumption last year, could again save the day for the companies concerned as purchases revive when the covid wave retreats. Better monsoons and higher farm-gate prices should underpin rural demand.

Cash storage is high across the consumption spectrum.

“The risk perception is significantly higher and, normally, I have six months’ cash at hand. I have enhanced it by 5 times this year,” said Ravi Bhatia, president of Jato Dynamics, an automotive business intelligence company in Mumbai.

Shashank Srivastava, executive director,Maruti Suzuki, said discretionary spending is expected to be slow during the lockdown, although the pace could pick up after the mobility curbs are eased.

Pent-up demand and the enhanced emphasis on personal mobility, in the immediate aftermath of the second wave, should drive demand for cars – at the cost of shared mobility and public transport.

For Maruti Suzuki, India’s biggest carmaker, April logged an overall growth in the rural sales. “We saw that rural demand faltered in the third and fourth weeks of April, as a sizable chunk of the retail outlets were closed,” said Srivastava.

Separately, this time, the pace of deposit accumulation at banks and financial institutions has been relatively slow in the face of mounting healthcare costs – and the need for emergency cash.

“The sentiment in the rural consumer currently is to conserve cash, as uncertainty looms large,” said Ramesh Iyer, VC & MD, Mahindra Finance. “Dealerships are not operating and the need to buy is not there. Post-August, with the upcoming festivals, rural spending will look up.”

Iyer highlighted the upcoming third and fourth quarters of FY22 to watch out for . “We are expecting that during H2 as vehicles and tractors will start becoming available especially on the back of a good monsoon and an improved agri-cash flow.”

The increase in overall deposits can also be attributed to outflows seen in equity mutual funds, suggesting risk aversion by a section of investors.

“As far as banks are concerned, they get to keep a larger part of these deposits as the CRR was lowered this year from 4% to 3%,” said Sanjay Agarwal, senior director, CARE ratings. “The liquidity surplus can be primarily attributed to deposit growth outpacing credit growth persistently.”

Of course, the pace of demand recovery hinges on the vaccination drive – and India’s ability to avoid subsequent waves of the disease.

“It’s not a doomsday scenario for us yet,” said Nilesh Gupta, director, Vijay Sales, one of the largest consumer durable chains in the country. “This is just a 2-3 months’ setback, after which we will be back on track.”

Nidhi Sinha, head of content, Mintel Reports India, said that throughout the pandemic, consumer focus on health and wellness has been a priority.

“Consumers continue to focus on healthcare with 46% spending more on healthcare and with 70% of consumers believing that expenditure on healthcare will help people live a healthier lifestyle. While 51% consumers are looking for flexible payment options for essentials in the next 3 months, around 52% of consumers expect discounts on healthy foods. All these point to the fact that healthy living is of prime importance along with affordability.”

To be sure, Maruti’s Srivastava said two types of consumers are seen in the markets these days. The first has less financial resources and reduces discretionary spends in such situations and buys only what is necessary. The other category has surplus resources but has stopped making discretionary purchases due to the negative sentiment.

For the first value-conscious category, car buying may be a necessary purchase and no longer discretionary due to the accent on personal mobility. For the second category, sentiments will quickly change, leading to discretionary purchases of SUVs or bigger cars, Srivastava said.

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