Business - Luxury cars, mobile phones buck slowing trend in India

Rina Chandran

MUMBAI (Reuters) - Have money, will buy Mercedes and mobile phone. That seems to be the mantra in India, where sales of luxury cars and mobile subscriptions are bucking the overall trend of lower consumer demand and slowing economic growth.

India's benchmark stock market is down more than half in 2008, industrial production has fallen and analysts expect economic growth could slow to below 7 percent in the year to March 2009 from 9 percent or higher in the past three years.

But that has not stopped mobile phone operators in the fastest growing market for mobile phone services from adding a record 7.7 million mobile users in October to their GSM networks.

Leader Bharti Airtel alone added 2.7 million new subscribers, while No. 3 Vodafone Essar rang in its highest numbers ever, a whopping 2.1 million.

Subscriber additions can continue at the same fast clip if operators stick to their expansion plans, said Usha Rajeev, head of the telecom practice at PricewaterhouseCoopers.

"Generally, in times of trouble, people feel a heightened need to stay connected and keep up with the news," she said.

"Also, the mobile phone is not considered a luxury product anymore; it's almost an essential commodity," she said.

Young consumers see the mobile phone "as an extension of themselves", Rajeev said, and would not cut spending on it, while for new users from small towns and villages, staying connected may be critical to earning a livelihood.

With just over a quarter of its billion-plus population owning a mobile, consultancy Gartner forecasts India's mobile user base will increase to 737 million by 2012, helped by call rates as low as 1 U.S. cent a minute and handsets at $15.


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At the other end of the spectrum is demand for luxury cars with a sticker price of more than 2 million rupees ($41,000), which has stayed strong despite a slump in car sales overall.

Car sales in India fell for the third time in four months in October as high borrowing costs and tighter credit depressed demand, with some firms including top vehicle maker Tata Motors Ltd shutting plants to avoid a build-up in inventory.

Car sales fell nearly 7 percent from a year earlier to 98,900 units in October, but Mercedes-Benz has already met its full-year target with sales of 3,141 units so far this year, a 47 percent increase from the same period a year earlier.

BMW's sales have more than doubled this year.

In contrast, sales of leader Maruti Suzuki Ltd, whose small, fuel-efficient cars are often the choice of first-time buyers, fell 8 percent in October.

"Perhaps the luxury car buyer's conviction in his purchase is greater, which makes the willingness to buy also greater," said Manas Dewan, a spokesman for Mercedes-Benz India.

India's luxury car market is likely to edge past Thailand and soon overtake Singapore's sales of about 10,000 units a year, JD Power Associates has estimated, helped by rising incomes.

India had 123,000 millionaires in 2007 and showed the fastest pace of expansion in numbers, Merrill Lynch/Capgemini has said.

"The gap between the number of people buying luxury cars and the number of potential buyers is still quite big," Dewan said.