Wednesday, January 16, 2019

Private consumption trends and investment strategy

Some food for thought
"In everyone's life, at some time, our inner fire goes out. It is then burst into flame by an encounter with another human being. We should all be thankful for those people who rekindle the inner spirit."
—Albert Schweitzer (German Theologian, 1875-1965)
Word for the day
Phatic (adj)
Denoting speech used to express or create an atmosphere of shared feelings, goodwill, or sociability rather than to impart information.
 
First thought this morning
Very few political analysts and observer might want to dispute the fact that the Indian National Congress acquired a mostly feudal character during Mrs. Gandhi's regime, and since then it has never attempted to change its approach to Indian politics.
"We did this for you" and "We gave you this" has been the common refrain for all their leaders in past five decades.
In their feudal spirit, the Congress leaders have been rather impudent in undermining the authority of constitutional, judicial and social institutions. In their unabashed sense of entitlement, they have been rejecting with impunity anything and everything that appeared challenging their feudal lordship.
Such overwhelming has been the influence of the Congress leadership on socio-political system of India that political forces which sought to challenge the Congress hegemony by putting forward an alternative agenda of social justice and inclusion, have all turned more feudal than Congress, in their pursuit of political power.
Performance of the incumbent BJP led government must be evaluated in this context, in my view. We the People of India must enquire "what has the incumbent government done to make the structure of our constitutional democracy, democratic?"
At the risk of being labeled seditious and unpatriotic, I would like to ask the Home and HRD Ministers of the country, whether they made any attempt to meet JNU students & others to understand their viewpoint and reasons for seeking disintegration of India.
They took the convenient road of silencing the voices of dissent by putting them in jail. That is what the imperial British and Feudal Congress would do. What is the difference then? If the establishment cannot bring around the university students in New Delhi, how does it propose to deal with armed extremists in North, North East and Central India. Eliminating them all is certainly one solution. But is it the best solution of all?
Chart of the day

 
Private consumption trends and investment strategy
The latest available data of the consumption profile of Indian consumers highlights a number of interesting aspects. (All data in current prices)

 
The following are some of the points that I found interesting in this data:
(a)   Basic necessities (Food, Shelter and Clothing) accounts for more than 50% of the private consumption. However, in five year period from FY12 to FY17, the spending on basic necessities has come down from 56.3% in FY12 to 53.4% in FY17. Almost all of this reduction has come from housing and related spending. This is little counterintuitive given the strong growth reported in availability of housing, electricity, gas and water connections, rent & energy inflation etc.
(b)   There is significant reduction in expenditure on consumption of alcohol, tobacco and other narcotic substances.
(c)    There is 20% rise in spending on health. It would be interesting to further examine this trend. Is this rise due to better affordability and awareness of household; or is it due to higher inflation in cost of healthcare; or is it due to deterioration in public health services; or is it due to rise in incidence of diseases; or a combination of all these and other factors.
(d)   Expenditure on Education has grown by 10%. Given the changes in demography in favor of younger people, this sounds inadequate. Intuitively, we know that the quality of public institutions has deteriorated over past many years. The education inflation has also been significantly higher. Like health, this also needs deeper inquiry.
(e)    Transport continues to almost one sixth of private consumption. This indicates that the public transport is seriously lacking, both in inefficiency and reach.
(f)    Spending on recreation, culture (festivals etc.) and eating out has gone down by 20%. This should ring alarm bells in ears of public policy makers. In a society where the individual stress is rising, people cutting budget for recreation and cultural occasions, cannot be good.
(g)    The spending on communication is almost stagnant. This is also counterintuitive to the massive expansion of telecom network and rise in number of subscribers. I find it hard to believe that the cost of communication has fallen so much that offsets the entire expansion.
(h)   The asset creation at household level continues to be non-priority. People are spending more than 90% of their consumption budget on services and non-durable goods. Expenditure on buying durable goods has fallen further by 10%, from a low of 3.1% in FY12.
In terms of investment strategy, one would need to evaluate the following:
(1)   Are we building a higher than nominal GDP growth in consumer durables, alcohol and tobacco?
(2)   Should we allocate more to health sector?
(3)   Are utilities like telecom, gas and power truly growth stories in Indian context.
(4)   Should continue to be overweight on already expensive staples, FMCG and dairy products?
(5)   Should we rationalize "festival demand" in our forecasts?
 

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