Rate cut tempts shoppers

October 11, 2015 11:23 pm | Updated November 16, 2021 03:54 pm IST - MUMBAI:

The way car salesman Ashish Bhavsar tells it, in India, men come first on their own to eye up a potential purchase. Then they bring their wives. Then — if it’s serious — the whole family.

On this weekday, almost two weeks after the central bank cut interest rates, a young boy and his elderly grandmother inspect a sports utility vehicle at a busy Hyundai Motor dealership in downtown Mumbai, while his parents speak to a sales agent nearby. That’s good news for Branch Manager Mr. Bhavsar.

He estimates that cheaper borrowing could mean sales growth of 12 to 15 per cent this year, above his 10 per cent target.

“Many customers were waiting for rate cuts. They didn’t want to make a decision,” he says with a grin, surrounded by gleaming new cars. “They will definitely come now.”

India kicks off its two-month religious festive period on Monday, a time considered auspicious to buy big-ticket items such as cars, and when promotions abound. Company executives say they see the Reserve Bank of India’s unexpectedly sharp 50 basis points cut last month as a lifeline.

Consumers have already been showing an eagerness to spend more on small luxuries, like movie tickets and fancy hair cuts, even as the overall economy struggles to take off after a period of cooler growth.

Yet with retail spending accounting for 50 to 60 per cent of the economy, India needs households to splurge on more expensive, higher-margin items such as washing machines, TVs and cars.

To date, a combination of slow consumer spending and a dearth of corporate investments has delivered a double punch to the economy, which grew a slower-than-expected 7 per cent in the April-June quarter, well below the government’s 8 to 8.5 per cent target.

With inflation around record lows and central bank rate cuts totalling 125 basis points so far this year, retail executives believe a consumer recovery is now in the offing.

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