The buy-now-pay-later epidemic has caught on. An entire generation of consumers is living life close to the edge, spending more than they earn. Now, with the economy taking a turn for the worse, they are a step closer to the precipice.

By Brian Carvalho & Swati Prasad

NAME: Irrelevant HOUSE: Worth Rs 30 lakh; bought on a 20-year loan CAR: Lancer; bought  on a 5-year loan CREDIT CARD: Gold; average monthly bill of Rs 60,000 SALARY: Just went down 10% STATE OF MIND: Confused and frightened

I owe, I owe, so off to work I go. that was (and is) the anthem of an entire generation of credit-happy customers. The Rs 16,000 crore home loans market is ticking along at a healthy 30 per cent growth; 90 per cent of all apartments bought is through the housing-finance route. The car loans market is valued at Rs 10,000 crore, and 70 per cent of all cars bought-up from 50 per cent three years ago-is financed. And personal loans (aka just-for-kicks loans) have swelled to Rs 2,500 crore, up from Rs 1,000 crore in 1999. Then there is plastic: the number of credit card holders in the country has zoomed to over 5 million, with 1.5 million joining the party each year. Worse (or better, depending on how you look at it), research conducted by the Credit Card & Management Consultancy (CCMC) shows that the proportion of credit card holders revolving credit has increased sharply from 25-30 per cent in 2000 to 35-40 per cent this year.

At any stage of the economic cycle, these numbers should have been cause for cheer, not alarm. Economics 101 says the incremental demand arising from increased spending will reinforce a boom, and turn around a bust. If that isn't happening in India today, blame it on what some observers have termed the Pink Blood Bath. Right from senior managers to middle-level executives to raw recruits fresh out of b-school, a host of Indians in the 25-36 age group and a part of the 180-200-million middle class are fearing for their jobs.

As industry struggles to cope with stagnant sales and wafer-thin margins, thanks to slowdown in demand growth coupled with intense competition, the axe is being brutally wielded in a bid to ensure survival. If the workforce isn't being trimmed, pay packets sure are. ''You can smell and feel the uncertainty,'' shrugs Rajesh Srivastava, Vice-President at UB group company Millennium Alcobev.

NAME: RANARAJ GUPTA/ CREDIT POSITION: An outstanding of Rs 30,000 on his three credit cards; A Rs 15-lakh home loan Normally, this director of a head-hunting firm wouldn't worry about his loan. But with his company's revenues dipping 30 per cent since April, he's worried.

This, then is the spine-chilling tale of the repercussions of the buy-now, pay later movement. It is the story of executives who have, over the past few years, got themselves fancy houses, fast cars, and a string of credit cards on which everything from a television to a microwave have been purchased. Even now, some of these consumers continue to borrow at will-for furnishing their homes, buying a second car, getting married, getting a club membership, getting educated, booking a vacation, retiring older, high-cost loans-for just about anything. Now, most of them need to get themselves one more thing: a job (or in the best-case-scenario, a job that pays more).

The Great Jobs Squeeze

There's certainly one on. Ask headhunter Ronesh Puri, he'll convince you. The Managing Director of Executive Access (India) Private Ltd., a head-hunting firm, Puri says the number of people approaching him for jobs has gone up by 150 to 200 per cent over the last two to three months. Alarmingly, ''a large majority of them is people who have either been axed or have been asked to find new jobs and have been given time to do that. Others are fearing the axe.'' He adds that it's professionals in the 30-35 age group who have been worst hit by the slowdown. ''This is also the age group that is the most aggressive and wants to acquire a lot, fast.''

An executive at a loan recovery agency for credit card companies told Business Today that genuine default cases have increased. ''They used to be negligible earlier. But today almost 20 per cent of the cases are genuine ones. These are either people who have lost their jobs or who haven't been paid,'' he says. Historically, the three most popular reasons for default have been medical emergencies, marital discord, and lack of insurance. Harsh Vardhan Roongta, CEO, apnaloan.com, says that if the deceleration continues, we will have a fourth reason: retrenchment and cutbacks. CCMC's Pushpendra Mehta believes default rates on credit card payments could zoom to more than 10 per cent this year.

Part of this skating-on-thin-ice situation is of the making of the consumer finance and credit card companies themselves. A decade after the liberalisation of the Indian economy, the Indian consumer is finally being spoiled for choice. Not only does he have fancy cars, the latest gizmos, and plush homes to choose from, all these luxuries are very much within the ambit of his affordability. For, the friendly-neighbourhood finance firm, armed with mouth-watering deals, is just round the corner. The economy might have slowed down, but that's the cue for savvy marketers to voice their pitch. In a boom time, they tell you to buy more, perhaps a television along with a VCR at a fancy discount. In recessionary times, however, the buzzword is simply ''buy''. ''The advertising message changes from greed to need,'' says Shivjeet Kullar, Creative Director, JNA Partnerships.

But there is, as these consumers are discovering, no free lunch. There's much pain after the pleasure, as a certain gentleman by the name of Antony Arakal (name changed on request) is discovering. Last year he landed a great job in a dotcom company as a channel head. The pay? Rs 35,000 a month. The job ushered in a new lifestyle for Arakal. He bought a car, a high-powered bike, and got himself another credit card. Last month, Arakal was handed a pink slip by his company since the channel he headed had to be closed down. But if you think losing a job is bad for Arakal, worse will follow in the months ahead. The outstanding on his card is around Rs 41,000, and the monthly installments on his car and motorcycle tot up to Rs 6,500 per month. As if that isn't enough, he is going to be a father soon. The thought of maternity bills is giving the man sleepless nights.

NAME: SAUMI MITRA CHOWDHARY/CREDIT POSITION: An outstanding of Rs 45,000 on her two credit cards; a personal loan of Rs 60,000 and car loan of Rs 1,30,000 A tech-editor who fears she may lose her job at NIIT, Chowdhary, who has a four-month-old baby, regrets those shopping binges.

It's The Economy, Stupid

Bleeding-heart stories abound. Anket Goud (not his real name), 29, is a media assistant. He earns a mere Rs 9,000 a month. A few months ago, Goud-whose friends know him as ''the ultimate cool guy''-decided he was ready for marriage. He saw a girl, he liked her, she liked him, and they both agreed to tie the knot. Even as Goud started making the wedding preparations, he was rudely interrupted just days before the marriage by the girl's family, who insisted on calling the whole thing off. Goud's crime? He was neck-deep in debt. He owned three credit cards (ICICI, Citibank, Stanchart), on which the total outstanding was Rs 30,000 (more than three times his salary) thanks to the clothes, television, and personal stereo he had purchased. Goud had taken a personal loan of Rs 1 lakh to renovate his house. But the girl he was to marry will never see that home.

It's easy to blame everything on the economy. The uncertainty on the job front is exaggerated by the gloom prevailing all around. The stockmarkets are in the dumps, saving doesn't seem worth the effort any more (that's the flip side of low interest rates), the infotech sector can't deliver those fantastic growth rates any more, and there are few feel-good factors on the horizon.

''I took a loan to buy a house a year ago, when things were fairly hunky-dory. Had I to make the decision today, I would have probably thought twice,'' says Rajeev Warrier, Chief Financial Officer, rediff.com. Adds Naresh Malkani, CEO, Indiaproperties.com: ''Whilst the small ticket properties are moving satisfactorily, the bigger ticket ones are an area of concern as people who invested in stocks or mutual funds are postponing their decisions to upgrade.''

If you don't want to blame the Government, you can choose from your boss, yourself (you made the purchase decision, didn't you?), and from a clutch of imaginative options. Akshay Shrivastava, a 26-year-old relationship manager at an MNC which has slashed salaries across the board, points a finger at direct sales agents (DSAs). He has to blame somebody: He's racked up an outstanding of Rs 40,000 on his credit cards, on a monthly income of Rs 16,000. ''The DSAs don't explain the rules correctly. I was kept in the dark. The DSA did not explain to me how I will be charged if I revolve my credit,'' he moans. Shrivastava has stopped spending on his cards for the last three months.

1  2

Issue Contents  Write to us   Subscription   Syndication 

INDIA TODAY |  INDIA TODAY PLUS | COMPUTERS TODAY  |  TEENS TODAY  
THE NEWSPAPER TODAY | MUSIC TODAY | ART TODAY | CARE TODAY