The Middle Class is Shrinking, Falling into Poverty

Nestle CMD Suresh Narayanan

 

In a news item, the CMD of Nestle India has said that the middle class is shrinking.

That should be good news for everyone, except that he is not talking about it in a positive way, that the Middle Class is moving to Rich class, he was talking about the erosion of purchasing power of the middle class, pushing it into poverty.

Now why did he say that?

He said this in the light of falling sales for this FMCG giant. His company’s sales volumes have fallen by 1%, whereas usually there is an annual growth that happens.

Thus if you take the annual growth at 3 to 4% for a company as big as Nestle, a fall in growth of 1% year-on-year actually indicates a fall of 4 to 5% in growth numbers.

Although the sales numbers have risen by 3%, they have risen due to increase in prices. There is very little headroom for increasing prices.

The signs for this were all there.

1. There has been an erosion of savings in the society. We are now at a 50 year low on savings as a function of earning.

2. Almost any product that you are buying, the price has been maintained but the quantity has reduced. You are paying 10 Rupees for a biscuit packet but the weight has been reduced by 20% or more.

3. Peronal Loans and Gold Loans are on the rise and people are dipping into their savings to survive and sustain.

4. Government has been raising taxes on almost everything, making common consumption items expensive.

5. Petrol, Diesel and Gas prices have been on the rise even when the input costs have come down, leading to higher logistics cost.

6. The Automobile sector is seeing buildup of inventory at the dealers to an extent of 77,000 Crores. Even Two-Wheeler sales are down.

The effect was to come, sooner or later.

“If the increase in commodity costs can be covered by efficiencies, we would rather not take up the prices. Our long-term model is penetration-led volume growth, so we have to start getting back to it. Any more price increase that we use is going to sharply retract us from that path,” Suresh Narayanan said, responding to a question on price hike.

Also the CMD said that he is seeing growth in e-commerce and quick-commerce segments but he would rather stay with the existing distribution model. The caveat from his statement was that ‘until’ e-commerce and quick commerce are able to replace the distribution network, he would continue with the existing arrangement.

Government wants you to believe that all is well, while the ground reality is that all is in the well.

A shrinking middle class spells doom for the economy. That is why China is doing a massive stimulus of 800 Billion US Dollars. It is injecting this money into to the bottom of the pyramid.

Narendra Modi does not believe in giving ‘Free Ki Rewadi’, and the country does not have the kind of money that can be given to the poor and the middle class. The rich have to be taken care of first as they ensure that Modi remains in power, funding his elections and grand life style.

There is more bad news to come, it is just a matter of time