Making Whoopee On Just A Rupee

Office spaces that suddenly cost less are making this family nervous. As they arrange to move into their own private clinic, theSens, both child psychiatrists, are reconsidering everything: how much should we invest, how big should it be, how good should it look? Still in the doldrums over a new camera oriPod, they easily rule out weekend getaways for six months. A "necessary" laptop for Selja was their biggest recent purchase. Suddenly, the old annual insurance premium is being discussed. The mantra: no unplanned purchases and resisting mall visits. "Our income is stable. We’re more concerned about risks going up," saysSen. "We don’t know what to expect."

Panic attacks—the sort that halts shopping expeditions—mark a classic onset of a phase of belt-tightening. If the lull follows a decade of impressive and much-hyped growth, layoffs, job freezes, fewer and less comfortable business trips and shrinking expense accounts can be especially frightening. "The reactions you are getting are not knee-jerk at all," confirms Laveesh Bhandari, economist and director of Indicus Analytics, an economic research and trends analysis firm based in New Delhi. "In every industry, every company we have spoken to of late, expansion plans are either being delayed or implemented slower or have been completely stopped."

That's roughly what individual consumers are doing with their money too: automobiles had a terrible 2008. Sales have shown a remarkable recovery in January '09, thanks to tons of sops and the first flush of Pay Commission money in government employees' pockets. But will it last? Housing has hit, well, a brick wall as buyers remain in wait-and-watch mode. Families are reconsidering air travel; rail travel could hit an air pocket next. Cellular handset makers claim fewer sales than in the first quarter of 2008. "Now, people are realising the last few years was a bubble. They're getting a dose of realism," says Bhandari

For everything that's true in India, the exact opposite is equally true—luxury goods continue to fly off shelves, entertainment (though DVDs, LCD/plasma TVs are selling less), healthcare and education products are doing better than before. Mobile phone connections also soared over the last three months. Why, asked about the mood, the owner of a grocery store in south Delhi laughs, "I have sold 12 five-litre bottles of olive oil in January, the most ever in five years."

In a 200-sq-ft room in Vasai, Kamal Bodke, who works as a domestic help in Vasai, lives with her husband, mother and three sons. Her husband Bhagwan earns about Rs 250-300 a day if he finds work at a construction site. Kamal makes Rs 3,000 a month. Rising prices of basic necessities have forced her to cut corners. Six months back she could afford 10 kg of wheat or jowar flour every month. Now she manages with 4 kg. Despite all this, the family will go for an occasional evening out—a movie or to eat out—but will spend less on those days too.

But even where there's growth, there's an inexplicable sense of foreboding. For instance, Shobha Deshpande, a middle-aged dentist, says she has noticed a decline in appointments at her clinic in south Delhi. "We're still busy but the number of patients does seem to have come down. People can put off dental treatments until they are in pain. It's so easy for us to schedule new appointments these days that we suspect this may be happening," she says.

Such anecdotal evidence proliferates even as bad news built up over the last week. It started with the claim that the slowdown is worse than the dotcom bust, that it won't last till June but October this year, that there will be more job cuts than expected, and now, that the economy may not grow at 7 per cent. Sentiment plays a big role, as customers wait to see interest rates or property prices bottom out—though nobody can predict how low prices can get.

"If someone expects even a five per cent cut in salary, he wouldn't want to go for a home loan," says Pranay Vakil, chairman of real estate consultancy Knight Frank India. But that's a big investment. Small buys, like a new outfit or TV set, are suffering too. 'Footfalls' or daily visitors to some malls have remained steady, barring the lull after 26/11, says Shravan Shroff, MD of Fame India. Fame Cinemas, which owns 19 properties in 10 cities, has seen people spend more over the last year too. "We've raised ticket prices by 10 per cent on average and each person is spending 17 per cent more. But Ghajini or a Rab Ne Bana Di Jodi would not have got their big collections without multiplexes," he says.

If the downturn had come two years ago, Shashi Rana says he would have shut down his small business of supplying and servicing biotech equipment. The growth of the last four years is keeping him afloat, but expansion plans are history. Shelved are plans to upgrade to a better car, new jewellery for his wife, who teaches at a government school, and a new air-conditioner. "No, we don’t plan on anything grand now. Even the holiday this summer will have to be low-budget," saysShashi. For now, he’s cutting costs at the workplace.

Harish Bijoor, who runs a consulting outfit out of Bangalore, suggests that the news will get worse before it gets better. He has advised many clients to trim the fat, or to sack mid-level employees making Rs 18-26 lakh a year first. "Yes, I'm one of the people asking companies to lay off employees to cut costs," he says. Add the gloomy HR picture in the US and Europe, and the potential return to roots of many non-resident Indians, and the picture becomes scarier. In response, business consultants have come up with yet another prediction—those fired today will happily re-enter the workforce with 30 per cent lower pay. If spending restraint doesn't signal a storm of lifestyle readjustments, the triple whammy of fewer jobs, lesser perks and acceptably lower pay should do it.

Others like Sandiip Kapur, the CEO of a mid-sized advertising outfit in Delhi, says business has moved to smaller firms such as his in the last two months. As news of the downturn spread last year, he "panicked"—stopped flying business class, travelled less and cut other costs. "I cancelled a holiday abroad, decided not to change cars and generally belted up," he says. Business suddenly picked up last December—but his cutbacks seem to have stuck: who knows what the future will bring.

The Chattopadhyays are a classic double-income-no-kids couple, splurging on electronic gadgets and holidays abroad. Both are managers in pharmaceutical companies. They’re paying back a home loan—comfortably—and for two cars. But some of their investments suffered during the recent stockmarket crash, pushing them towards gold or fixed deposits. The downturn has also made them cautious about how they spend: cutting down on entertainment and shopping, no bigger apartment for now. But they are hell bent on going for a holiday to Europe in April. That is, "if everything goes well," says Dola, loudly knocking the wooden table in their living room.

In the near future, the only people untouched are India's richest and most famous. They're still spending on luxury items. Maybe they're not used to cutting costs, or their income is insulated from market fluctuations, says Bijoor. These protected incomes are 8 million strong, and they live in pockets of the major metros. The rest, sadly, falls in the latter category, where buying patterns are re-evaluated. It's like not buying Bossini and Gap and going for Banana Republic instead; or choosing made-in-India Lee jeans instead of the imported kind. "Indians are buying, they are just not buying as much as they used to," says Arvind Singhal, chairman of management consultancy KSATechnopak.

If "spending consciously" has replaced conspicuous spending, industry is also betting the conservative Indian consumer has saved enough money to make him a confident spendthrift for a couple of years. "The direction of savings and investments is firmly upwards," avers Ajay Bagga, chairman of the Financial Planning Standards Board of India. Now, as retail investors reassess the safest places for their money, gold, insurance and fixed deposits have a new glint to them. "We see a desolate landscape," says Bagga, and it may last a few quarters. Even Gen Y—children of liberalisation born in the '80s and '90s—have proved to be conservative. No more than 20 per cent of their money was in risky equity, and then not in the most volatile assets. Their watchfulness will only balloon in future. "People aren't obsessed with returns any more, they want safety, liquidity and returns in that order," says Y. Jawahar, vice president, Mata Securities.

Bankers say people are seeking out capital guarantee schemes, and several have been introduced recently. People are using credit cards less, and credit delinquencies are rising. Of late, ICICI has halved its new credit card issuance. Others suggest that last year's delinquencies were half today's. Parag Rao, who heads a credit card division at HDFC Bank, says, "Customers earning less than Rs 30,000 a month are choosing to push back payments as well."

The barometer has changed in India. Aspirations are pulling down prices of even the most reputed brands. No one will pay top prices for last year's collections, and that's no different from Shanghai, Singapore or Hong Kong. But then, the outlook has also dulled. "Everyone keeps telling me that during the Great Depression, people flocked to cinema halls, but that was then and this is 2009. Things may turn out quite differently," says Shravan Shroff. That's one prediction no one will have a problem with.