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The current economic slump has another side to it

Date: 28-11-2019
Subject: The current economic slump has another side to it
An often-discussed aspect of the ongoing economic slowdown debate is whether it’s cyclical or structural.

While nobody can argue that India has significant structural problems that have for far too long been ignored, a multitude of factors including globally weaker demand has brought the cyclical reasons responsible for current slowdown to the fore.

The cyclical vs structural battle has missed an important shift in a growing economy like India. With weak consumer sentiment and as more and more millennials become financially independent, demand for certain things has slackened. A new renting and sharing economy has sprouted, effects of which have started to show up.

This new consumer behaviour of renting items has, according to experts, hit the economy.

Aditi Nayar, Principal Economist, ICRA, in a recent interaction with ET, said, "I think there are definitely some structural elements to the slowdown, there are some cyclical elements and I believe there are some shifts in consumption patterns as well that are going to affect buying decisions going forward. So, it’s not just one or the other but it is a complex mix of all these that is affecting the economy."

Even the Finance Minister quoted studies that show a change in consumer behaviour. Talking about the auto slump, Nirmala Sitharaman said, "Till roughly two years ago there was definitely an upward trajectory to be seen in the automobile sector. The sector has been affected by several things like the BS VI norms and changing mindsets."

Sitharaman went on to say, "Studies show that millennials who are not willing to commit on EMI towards buying an automobile instead would prefer to have Ola, Uber and everything else or take the metro."

The fact that India's economy has, for long, not addressed the concerns about its structural flaws is not lost on anyone. Some cyclical impact too is visible as the economy slows down. The global economy, in general, is limping and India is taking a hit because of that as well. However, in the midst of all this, the businesses that rent products ranging from durables to clothing and sharing platforms are seeing an uptick in business.

Companies like Rentomojo, Furlenco, and Renticle that rent furniture to people have seen their revenues rising. Furlenco expects its net subscription revenue to touch $300 million by 2023. Instead of buying a car to commute to work, young men and women have shown preference for sharing rides on ride-sharing platform QuickRide, hailing a cab using Uber or OLA, or renting a car on a monthly basis from startups like Revv.

The weakness in demand can partly be explained by this phenomenon.

"I think with every new generation, the buying patterns and the consumption patterns are different and that is also something that we need to be aware of where people want to spend their money will also shift. Therefore, some sectors may turn out to gain from this shift in consumption patterns and other sectors may need to adapt," said Nayar.

Consultancy group EY sees the renting economy to reach a staggering $20 billion in the next five years. If the trend of renting and sharing continues to pick up pace, sectors that are being hit will have to restructure to suit the needs of the market.

Source: economictimes.indiatimes.com

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