The manufacturing and real estate sectors may have never had it as good as the previous fiscal, after emerging from the difficult times of 2009-10. Increased consumer spending and expansion into new markets have both worked positively for many companies.
While a positive public sentiment on India recovering from the global financial crisis unscathed may be one reason the tills kept ringing, a large role was also played by the Government reducing excise duties by four per cent across two stages . The central bank also pitched in , lowering the borrowing cost of money in order spur consumption in the economy.
Data released by the Reserve Bank of India (RBI) for the period between April 2010 and February 2011 show that lending by the top 47 scheduled commercial banks towards the purchase of consumer durables has grown 20.8 per cent (to Rs 10,023 crore). This is against a decline of 1.1 per cent in the same period the previous year, when the outstanding loans stood at Rs 8,101 crore. Consumer durables are goods that are generally replaced after a long period of use, such as home appliances, furniture, or mobile phones. On an overall basis, the disbursement of personal loans has grown 14.8 per cent , against a modest 2.8 per cent rise in 2009-10. While the consumer durables market was the highest gainer, there was also significant rise in bank borrowings for the purchase of real estate (13.8 per cent), automobiles (23.7 per cent), besides other personal loans (13.3 per cent). Only education loan disbursement posted lower growth at 18.8 per cent, against a 27.8 per cent growth in April-February, 2009-10.
Clearing inventories
Companies working harder to clear inventories of the previous year also helped boost sales. In sectors such as automobiles, many firms expanded their sales network to yet unexplored markets such as small towns and rural areas. They bet on innovative strategies that paid off by initially offsetting the drop in sales in urban India and then increasing the market size altogether. Spurred by cheaper interest rates and growing aspirations, more people bought cars on credit leading to a rise in outstanding loans to Rs 78,894 crore in February 2011, from Rs 61,605 crore in February 2010. Auto sales grew 26 per cent in 2010-11, the second fastest after China.
Other factors also fell in place to support the growth. This includes increased purchasing power due to rising incomes, especially on account of the 6th Pay Commission payouts to those employed in the public sector. Even though the private sector worked hard to reduce costs, sectors such as IT services saw new jobs being created as American and European companies outsourced certain operations to India.
Pay-back time
With the new financial year starting, it is interesting to note that a few believe that the growth bubble could burst soon. Companies have been shy of giving a highly optimistic outlook purely on the basis of the last year. Some feel that the boom can be explained more simply by saying that the increase in purchases in 2010-11 was largely due to the pent-up demand of 2009-10 coming to the market. There is also a fear that the current trend of tightening by the RBI and the resultant increase in lending rates may stop the i good run . On the other hand, rising inflation may not leave the central bank with many other options.
However all may not be lost, with the good practices learnt in hard times now paying off. Besides discovering new markets, companies have also started placing more importance on the optimal usage of resources (often scarce and expensive) and higher process efficiency. In bad or good times, the benefits of these will surely reflect in the balance sheets in the years to come.
While a positive public sentiment on India recovering from the global financial crisis unscathed may be one reason the tills kept ringing, a large role was also played by the Government reducing excise duties by four per cent across two stages . The central bank also pitched in , lowering the borrowing cost of money in order spur consumption in the economy.
Data released by the Reserve Bank of India (RBI) for the period between April 2010 and February 2011 show that lending by the top 47 scheduled commercial banks towards the purchase of consumer durables has grown 20.8 per cent (to Rs 10,023 crore). This is against a decline of 1.1 per cent in the same period the previous year, when the outstanding loans stood at Rs 8,101 crore. Consumer durables are goods that are generally replaced after a long period of use, such as home appliances, furniture, or mobile phones. On an overall basis, the disbursement of personal loans has grown 14.8 per cent , against a modest 2.8 per cent rise in 2009-10. While the consumer durables market was the highest gainer, there was also significant rise in bank borrowings for the purchase of real estate (13.8 per cent), automobiles (23.7 per cent), besides other personal loans (13.3 per cent). Only education loan disbursement posted lower growth at 18.8 per cent, against a 27.8 per cent growth in April-February, 2009-10.
Clearing inventories
Companies working harder to clear inventories of the previous year also helped boost sales. In sectors such as automobiles, many firms expanded their sales network to yet unexplored markets such as small towns and rural areas. They bet on innovative strategies that paid off by initially offsetting the drop in sales in urban India and then increasing the market size altogether. Spurred by cheaper interest rates and growing aspirations, more people bought cars on credit leading to a rise in outstanding loans to Rs 78,894 crore in February 2011, from Rs 61,605 crore in February 2010. Auto sales grew 26 per cent in 2010-11, the second fastest after China.
Other factors also fell in place to support the growth. This includes increased purchasing power due to rising incomes, especially on account of the 6th Pay Commission payouts to those employed in the public sector. Even though the private sector worked hard to reduce costs, sectors such as IT services saw new jobs being created as American and European companies outsourced certain operations to India.
Pay-back time
With the new financial year starting, it is interesting to note that a few believe that the growth bubble could burst soon. Companies have been shy of giving a highly optimistic outlook purely on the basis of the last year. Some feel that the boom can be explained more simply by saying that the increase in purchases in 2010-11 was largely due to the pent-up demand of 2009-10 coming to the market. There is also a fear that the current trend of tightening by the RBI and the resultant increase in lending rates may stop the i good run . On the other hand, rising inflation may not leave the central bank with many other options.
However all may not be lost, with the good practices learnt in hard times now paying off. Besides discovering new markets, companies have also started placing more importance on the optimal usage of resources (often scarce and expensive) and higher process efficiency. In bad or good times, the benefits of these will surely reflect in the balance sheets in the years to come.
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