Reading the tea leaves on consumption

Are we on the verge of a phenomenal unleashing of consumption? This column takes a consumer-based stab at assessing what may happen - consumerbased assessments explain phenomena better than company performance-based, or worse still, listedcompany performance-based assessments.

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Let's examine the situation of the three major drivers of household consumption growth: When people get more money - whether earned, borrowed, or through welfare; when things people want to buy become cheaper or when the cost of loans become cheaper; and when people feel the economic environment is getting better and there is nothing lurking in the future that makes it unsafe for them to spend today.

Cuts in the goods and services tax (GST) rates have decreased prices across the board, from Mercedes cars to mustard oil, and hotel rooms to health insurance. Unlike segment-specific welfare transfers, or income-tax cuts, or category-specific excise duty cuts, this measure benefits everybody. It incentivises high-income, heavy-spending buyers of premium goods and services who contribute a large chunk to private consumption expenditure and have comfortable surplus income to spend even more . It also enables modest-income, modestspenders who desire more than they can afford to increase spending. The festival-season-timed GST rate slash, in an environment of low inflation and potentially lower borrowing costs, creates a strong tailwind for consumption.

Companies have historically shown bearish and bullish behaviour in terms of their marketing efforts, rarely staying a steady course, except for a few seasoned consumer marketers. When they see a supportive environment, they spend on marketing and absorb increases in material costs, betting on getting a return on it by way of increased revenue. However when the environment is tough and they need to appease the stock market, they do the reverse and choose profit growth over revenue growth. The cor-