Cash conserved, markets nurtured

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Former managing director of ICICI Bank Kundapur Vaman Kamath is widely credited for popularising equated monthly instalments in India. As the economy struggles to emerge from the shadow of the pandemic, the significance of his efforts is being realised every day since more and more people, are trying to conserve cash and yet satisfying both their needs and wants. The revival of the economy is critically dependent on the revival of consumer spending, which, in turn, depends on consumer confidence. While consumer confidence seems to be suffering on the whole, even those with sufficient cash in their pocket are trying to preserve it for different types of unforeseen emergencies.

Agencies don’t hold out much optimism as far as consumer confidence is concerned. This week, Fitch slashed expenditure forecast in 2021 from 9.1% made in June to 8.9%. In 2020, the pandemic contracted Indian household spending by as much as 9.3%. In the first week of June RBI said the “current situation index” dropped to a record low of 48.5. So did the “future expectation index” from 108.8 in March to 96.4 in May. In the RBI survey 100 is the level that marks optimism from pessimism.

With financial uncertainties dogging the footsteps of the common man, EMIs have come to the rescue. Zero interest EMIs are fuelling expenditure on a variety of items. Consumers are increasingly opting for EMIs through credit cards, debit cards and NBFCs. It is becoming a preferred way to conserve cash and the Gen Z population is especially responding fast. Significantly, this shift in consumer behaviour is also leading to fast growth of the BNPL industry.

Digital payments company Ezetap has recorded 220% jump in EMI volumes in July this year compared to February 2020, the last full pre-pandemic month. According to statistics from the National Payments Corporation of India, recurring payments, which include EMIs, rose from 4.13 crore transactions worth Rs 35,351.11 crore in April last year to 5.77 crore transactions worth Rs 61,303.46 crore in July this year. If the economy revives this year and companies record substantially higher sales in the coming festive season, they should be grateful to the BNPL culture.