October , 2019
Banking on festive mood to boost consumer spending
14:57 pm

Tushar K. Mahanti

India’s festival season is here. Diwali generates the biggest shopping stimulus. From neighbourhood sweet shops to white goods and jewellery retailers, everyone cashes in on the festive mood. Indian festivals, be faith-centric or secular in nature, involve exchange of gifts. This process supports economic growth in varying degrees.

Sectors such as auto, FMCG and white goods generate up to an estimated 35% of their annual sales during this time. Companies come out with new products and imaginative sales strategies to tempt buyers.

The festival season this time is somewhat different. The economic growth slowed down to a five-year low in April-June quarter of the current year and experts believe that it was primarily due to falling consumption expenditure. Higher household consumption expenditure in the festival season is expected to boost the economy and generate higher GDP numbers.

Dhana Trayodashi or Dhanteras is the first day of the Indian Diwali. The festival is known as "Dhanatrayodashi" or "Dhanvantari Trayodashi". It is celebrated on the thirteenth lunar day of Krishna Paksha (dark fortnight) in the Vikram Samvat Hindu Calendar month of Ashwin. Dhanvantari is worshipped on the occasion of Dhanvantari Trayodashi. Dhanvantari is considered to be the teacher of all physicians and the originator of Ayurveda.

Online trading, the big gainer

Shopping on Dhanteras is an essential part of Hindu tradition. On this day, people buy silver, gold or metal articles. Things have changed of late and due to busy schedules, many do not have the liberty of time to go to shops to buy their favourite items. Here the option of online shopping comes in handy.

This is reflected in the sharp rise in online sales volumes. Online shopping this time has surpassed all its past records. The combined sales of Walmart owned Flipkart and rival Amazon during the festival sales of early October were estimated at $3.5-3.7 billion – up by 33% over the previous year. IT industry body Nasscom estimates the Indian e-commerce market at $33 billion in 2017-18 and at $38.5 billion in 2018-19.

This comes as growth slows in Asia's third-largest economy, denting sales of everything from cars to cookies, and prompting the government to step in with tax cuts and a raft of other measures to revive growth.

Emboldened by this success, Amazon came out with another festival sale between October 13 and October 17 to coincide with Diwali. The e-commerce giant offered huge discounts on mobiles, electronic goods, laptops and household products. Amazon has successfully grabbed a large chunk of the Indian e-commerce space even though it entered seven years after Flipkart in 2014, winning over millions of customers with its ‘Prime’ loyalty programme, which gives users early access to deals during sales, free music and video streaming services. Offline traders at home, claim that Amazon’s sales policies are affecting their business and have asked the government to ban the festive sales, citing that the deep discounts were violating the country's foreign investment rules for online retail.

Higher prices dampen the gold market

Gold is considered auspicious as well as a good investment. In the long term, investing some part of savings in gold always fetches good returns. At the same time, it creates protection against erosion of purchasing power either to the exchange rate or inflation. Gold has also given a huge return this year, adding to the excitement of investors. 

According to World Gold Council (WGC) India consumes 800-900 tonnes of gold every year, much of which is imported. The sharp rise in gold prices in international market and the hike in import duty from 10% to 12.5% back home have increased the domestic gold prices to record levels. This has, in turn, affected the household demand and gold traders fear a lacklustre Dhanteras this time.

This is reflected in the fall in gold imports in recent months.  In August gold imports fell by 62% to $1.37 billion – the lowest since August 2016. In terms of quantity, import fell by 73% to 30 tonnes from 111.47 tonnes a year ago. In July, gold imports had declined 55% from 88.16 tonnes in the same month a year ago to 39.66 tonnes. In terms of value, import fell by 42% to $ 1.71 billion. In 2018-19, gold imports declined by 3% in value terms.

Consumer durable makers expect to clock in higher sales growth this festive season by offering freebies and discounts to woo consumers, hoping to put behind the woes they faced in the run-up to GST rollout. Manufacturers, including Sony, LG, Panasonic, and Haier, are pinning hopes on pent-up demandafter witnessing sluggish sales in recent months.

According to ASSOCHAM, Durga Puja contributes to about Rs 40,000 crore businesses in India with almost 35% CAGR, most of which is in West Bengal. Event management companies all over the world including companies from France and the US are engaging in Kolkata in supporting the entire caravan of the festival including advertisements and cultural programmes at Durga Puja pandals. During the Durga Puja, the food and beverages sector also generate
Rs 50-60 crore business. During Diwali, electronics, auto-mobiles, and apparel dominate the share of businesses around the country with a whopping 52% of the apparel products sales taking place and according to one estimate, every individual spends an additional 20% for various celebration reasons.

According to Tamil Nadu Fireworks and Amorces Manufacturers Association (TNFAMA), the crackers industry plays a dominant role with `10,000 crore businesses and provides employment to thousands of families in Sivakasi in Tamil Nadu.

Cheap Chinese goods- a threat to Indian manufacturers

But if India is expecting the festive mood to boost consumption spending, a large chunk is feared to be grabbed by China. India is the largest consumer of Chinese products, a market of about $72 billion, importing all sorts of goods like toys, crackers, lighting, electronics, gift items, watches etc. Most of these products are being purchased during the festive seasons and these cheaper Chinese goods give tough competition to Indian manufacturers. Most of these items are produced in small and micro industries in India with small investment, low technology and lack of skill. It is hard for them to compete with the large-scale, low-cost produce by Chinese counterparts.

According to a survey by ASSOCHAM done in different parts of the country, 8-10 lakh jobs are being lost due to Chinese products capturing the Indian market on Holi. As much as 75% of colours as well as a huge share of plastic products and water guns used in India last year were from China. On Diwali, according to Tamil Nadu Fireworks and Amorces Manufacturers Association, 40% of the Rs 10,000 crore fireworks business was captured by Chinese products, affecting an estimated 2.5 lakh Indian artisans adversely.

Cheap Chinese products edging out Indian goods is a reality and there is no immediate solution. India needs to compete with China both on the price and quality fronts. The festive mood that boosts consumer spending gives our industries the opportunity to reclaim the market.


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