Consumer financing adds a fourth to growth in 1999-00

After trying to get the government to increase the power supply in the country, the next big thing for consumer durable firms is to increase the availability of cheap finance.

According to the NCAER's forthcoming Indian Market Demographics Report 2003, growth in the purchase of white goods that were financed is significantly higher than those which have not been financed.

And the availability of consumer finance first made a dramatic difference in 1999-00, when this added around a fourth to the growth in the demand for white goods.

From 1998-99 to 1999-00, the overall growth in the white goods markets was 18.9 per cent -- the figure for financed white goods, however, was a much faster 23.9 per cent.

By contrast, from 1992-93 to 1998-99, the growth in the financed segment has always been lower than the overall growth, implying that consumer finance was a less important avenue during this period.

During 1997-98 to 1998-99, for instance, the overall white goods market grew 16.2 per cent, but the financed part of this actually fell 14.1 per cent.

For rural markets, the availability of cheap finance was an even bigger factor in growth. While rural demand for white goods grew 22.4 per cent in 1999-00, the growth of financed white goods rose a phenomenal 39.6 per cent.

The southern and western markets have been the dominant ones when it comes for consumer financing, and account for 70-80 per cent of the total purchase of financed goods in the country -- the south's share is around 45 per cent, while that of the north is around 30 per cent.

However, the purchase of financed goods as a percent of total purchases has, curiously, fallen from 25 per cent in 1992-93 to around 16 per cent towards the end of the 90s.

While this could be owing to a glitch in the data, NCAER says this points to the unavailability of sufficient consumer financing options even today in several markets.

How important the growth in consumer finance has been can also be seen from a related study done by Rakesh Shukla and Shashi Brahmankar of the NCAER which says that while retail loans have grown by 27 per cent per year in the last three years, commercial credit grew by a much lower 13.6 per cent.

Rural India accounts for around a third of all purchases of white goods with consumer financing.

The highest growth in financed-purchases of white goods in 1999-00 has been in south India, where the growth was around 103 per cent as a whole, and 134 per cent in urban areas.

With the market for consumer durables slowing down, the next wave of growth, it is clear, is going to be largely determined by the availability of consumer finance.