No Real Recession in India, but Consumers Are Changing Behavior

Four Observations on How the Economy Has Affected the Local Psyche

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Sourabh Mishra
Sourabh Mishra
An underlying sense of panic was very palpable over the last year or so in India, led primarily by the Sensex (the key stock market index of India), which had touched the euphoric 20,000-plus level in January 2008 and then plunged almost to the 7,000 level by October. The finance minister went blue in the face telling everyone that the fundamentals of the economy were still strong and that there was no real reason for negative feelings.

But was there a recession at all in India? NO! Although India recorded a slower growth in the last quarter of 2008 (from 7.6% to 5.3%), there was no negative growth in GDP to register an official recession. And research shared by the Labour Bureau and Ministry of Labour and Employment reveals that the average rise of unemployment in India until the last quarter of 2008 has been around 1.01% -- lower than the 1.5% typically indicative of recession.

Was all the negative news just hype then? Not really. Specific sectors suffered. Job losses became common, leading to a fear psychosis gripping not just affected industries, but others as well.

A survey conducted by the Indian Market Research Bureau revealed that consumers have a negative outlook on the future of the economy and that they have cut expenditures on high-end products and entertainment in order to "survive in the current crisis." At the same time, most consumers feel there is no change in their own financial health so far.

Sourabh Mishra is chief strategy officer at Saatchi & Saatchi, India. He writes regularly for Ad Age's Global News section.
And how has this affected the marketer's life here? Nalin Mehta from auto giant Mahindra Renault sums it up well when he says, "I think companies get into a mind-set of preservation. They tend to move money from long-term needs to short-term. In that sense advertising shifts from 'brand' to 'tactical offers.'"

From the Indian perspective, this economic crisis has led to some interesting observations, highlighted by a Saatchi & Saatchi internal study:

1. People are beginning to realize there is a flip side to the opening up of the economy through reforms, which can lead to losing one's job. This is the 'growing-up and maturing' phase for Indians, as India is poised to continue on its path to economic reforms and getting better integrated with the rest of the world.

2. Owing to the current well-being of most middle and upper-middle class Indians, many things previously considered as unattainable luxuries now seem to be within their reach. Holidays to Europe, for example, are now a tempting buy for many families.

3. Similarly, even India is becoming a more attractive destination for the world as it offers great value. "Medical tourism" has clocked about 30% growth in the last few months, according to industry insiders.

4. The "recession mind-set" has led to some "value" choices being made, which may stay with the Indian consumer as we go into the future. Many young, upwardly mobile professionals in the larger Indian cities, who fueled the pub boom as they consumed out-of-home entertainment with their newfound affluence, are now making an economically sensible choice by entertaining at home. This mind-set is likely to spill over to other categories, too.

So while there has been no recession in India, Indians seem to have been affected by the recession psyche. The lessons learned will make for savvier, more mature consumers here, as we go into the future.

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