April 2009

Inside

Asian Versus Global EconomyThe Growth Story Macro Economic Indicies Consumer Packaged Goods Telecom Retail

The Tiger (Un)Caged!India Under Recession

“India Shining”, a controversial political slogan that mesmerized the country during the 2004 general elections was popularized by the then ruling Bhartiya Janata Party (BJP). The term signified the overall feeling of economic optimism in India after plentiful rains in 2003 and the success of the Indian IT boom. Siddharthan Sundaram, Director of Retailer Services, Nielsen India asks, “Is the slogan still valid for India at a time when the rest of the world is reeling under the weight of recession and economic turmoil?”

India Shining - A Myth or Reality?It seems YES, though not so brightly. Economic indicies and indicators such as the sales of consumer packaged food and grocery items and consumer durables did suggest that the recession tsunami has not yet hit the Indian shore heavily, though Nielsen’s consumer confidence index for the 2nd half of 2008 observed a decline of 8 points from 122. But still India stood first amongst the 52 markets where the online survey (of around 26,000 consumers) was conducted during the last quarter of 2008. The study revealed that the index for India (114) was significantly higher than the global average of 84 points.

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April 2009

Optimism Reigns

Does it mean that the Indians are optimistic? Despite the global economic recession, Indians seem to be quite confident of the economy picking up in the near future – they believe that the global recession will have a limited impact on India given that the domestic market is large enough to support continued growth. As of today, the recession has made some impacts on IT, real estate and manufacturing sectors.

As a culture, Indians by default tend to be optimistic – as a popular adage goes, “Whatever is happening, that is for the good!” That optimism seems to ring true even in today’s economic meltdown where the world is reeling under recession and took a dip in the consumer confidence index.

Indian Investors have also been safeguarded by the country’s evolving financial market, where savings accounts with the bank are still preferred and one is seeing the fixed deposit re-emerge as a recommended investment option. Indeed, the Consumer Confidence survey found that 77% of the Indian respondents consider the state of their personal finance to be “excellent” to “good” for the next 12 months.

Asian Vs Global Economy

Most Asian economies have been models of prudence unlike American and European households where borrowing is up to the hilt. Asian banks were tucking away their savings while rich country banks were piling into ever-riskier assets. Asia’s emerging economies have long been the world’s most dynamic with GDP growing at an annual rate of 7.5% over the past decade, two and a half times as fast as rest of the world.

If Asian countries insist on trying to keep savings and forex reserves high (the Indian forex reserve has gone up around 1 billion USD between the end of December ‘08 and 30th January ‘09 – as of 30th January it stood at 248 billion USD) and Americans and Europeans do so too, then world demand will collapse and the recession will become a depression (in that case, as economists say, “The difference between a recession and a depression – in a recession your neighbor looses their job, in a depression you do!”) Thus, Asian countries, especially China, will have to consume more, save less and export less. Americans will have to save more, spend less and export more. This re-balancing will restore global parity and enable global growth to rise sustainably once again.

The Indian economy – even at an adjusted 6-7% expected growth – still makes for a good job market (the current unemployment rate stood at 6.8% compared to 9% in China) amongst BRIC markets, though the conditions might not be as good as they were in the past few years. Also the growth and investment opportunities are better than most other countries at the moment. The recent study, Global Retail Development Index 2008, of A.T. Kearney suggested that India is still the best investment destination for the Retail Sector followed by Vietnam.

April 2009

Chart 1: Global Consumer Confidence - India has Highest Index

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Global average: 84

2nd half 2008 Changes 2nd half 2008 vs. 1st half 2008

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Nielsen Global Consumer Confidence Index2nd half, 2008

Base: All respondents

April 2009

April 2009

The Growth Story

Macro Economic IndicesThe Indian Economy is predicted to grow 7.1% during the current fiscal as against 9% in 2007-08. The Central Statistical Organization’s (CSO) overall 7.1% growth projection comes despite both agriculture and industry (especially manufacturing and construction) expected to register deceleration. While industrial growth is expected to fall from 8.1% to 4.8% this fiscal , the farm sector will see a lower decline from 4.9% to 2.6%. The CSO however, forecasts the slowdown in industry and agriculture to be partially off-set by a solid 9.6% growth of the service sector that registered a growth of 10.9% in 2007-08. The sector-wise GDP growth rates are given in table 1.

Source: Business Line Feb, 2009

Consumer Packaged Goods (CPG) The Nielsen Retail Index portrays a healthy growth in the case of Consumer Packaged Goods (CPG). The branded, packaged consumer goods tracked (around 90 product categories) by Nielsen on a regular basis at a national level has witnessed around 19% growth in value terms and around 7% in volume terms for the period Jan-Dec’08 over Jan-Dec’07. Chart 2 describes the quarterly trend for the last 8 quarters.

TelecomThe mobile handsets market in India witnessed an additional 46 million connections between Aug’08 and Dec’08 with a monthly average of around 7.6 million new consumers, which means roughly one quarter of all Indians (around 258 million) are connected with GSM today.

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09Agriculture 9.96 0.05 5.84 3.95 4.86 2.61Industry 7.38 10.34 10.17 11.00 8.10 4.82i mining & quarrying 3.09 8.15 4.89 8.84 3.27 4.66ii manufacturing 6.63 8.65 9.06 11.77 8.20 4.14iii electricity, gas, water 4.77 7.90 5.06 5.27 5.26 4.29iv construction 11.98 16.14 16.22 11.79 10.11 6.46Services 8.49 9.13 10.59 11.23 10.85 9.60i trade, hotels 12.02 10.69 12.11 12.82 12.39 10.28ii finance, insurnace 5.58 8.69 11.39 13.78 11.75 8.59iii community service 5.41 6.83 7.07 5.71 6.79 9.28GDP at Factor Cost 8.52 7.47 9.52 9.75 9.01 7.09

Table 1: Sector Wise GDP Growth Rates (%) in India

April 2009

3893 4020 4162 4398 4479 46574977

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Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Q2'08 Q3'08 Q4'08

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Source: Nielsen Retail Index. Value in Mil US$. INR 48 = 1 US$

Retail A few big corporate houses involved in the Indian retail sector have already taken the cue and are planning to go ahead with their expansion strategies as per the schedule, despite the world financial turmoil. Just have a look at a few of the expansion plans announced by the players in the retail sector that had appeared in the business dailies and the industry specific websites in the last 2-3 months – Wipro is to pump 25 million USD in its furniture business, Aditya Birla is to open 12 hypermarkets by 2010, Peter England (a chain of Men’s wear store) plans to set up stores across 1000 towns, Cartridge World is to launch 250 stores by 2010 and Donear plans 200 specialty stores by the end 2009 to name a few.

The recent study by Accenture suggested that every retailer should be able to achieve competitive advantage in a down-turn by simultaneously taking certain critical action in regard to both cost reduction and sales growth. Some of the areas for the cost reduction are:

Reduce the indirect procurement and redundant •headcount.

Improve inventory forecast and replenishment •capabilities and take full advantage of vendor payment terms to lower working capital requirements.

Adjust store labour and field operations to reduce •operating cost.

Rationalize the lowest performing stores and re-•negotiate lease terms.

The Consumer Confidence Index study further revealed that while Indians’ intentions to spend on personal comforts such as new clothes, home improvements/decorating and technology products are stronger than global average, their intention to spend on holidays and out of home entertainment is much lower. In a nutshell, this indicates a general tendency among Indians to lead a comfortable day to day life by cutting out the frills.

For the marketers, investment in brands today is necessary to secure brand loyalty for better times ahead.

Though India is not shining very bright as in previous years, around 51% of the consumers polled in India opined that India will be out of the economic recession in the next 12 months and the majority of the Indians have their hopes on India’s recovery in the year 2009!

Chart 2: Consumer Packaged Goods Sales

April 2009

April 2009

about The Nielsen Company

The Nielsen Company is a global information and media company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence, mobile measurement, trade shows and business publications (Billboard, The Hollywood Reporter, Adweek). The privately held company is active in more than 100 countries, with headquarters in New York, USA. For more information, please visit, www.nielsen.com

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