This month’s Diwali festival, which is usually a time when consumer spending soars in Asia’s third-largest economy, should provide Indian businesses with a much-needed boost. as well as concerns about the global economy slipping into recession, optimism is robust.
Ram Kalyan Medury, founder and CEO of investment consultancy Jama Wealth, says consumption tends to increase dramatically around Diwali. Even the possibility of a recession with high inflation on a global scale “cannot dampen the Christmas spirit”. Demand increases as a result of sales, discounts, and general increases in foot traffic to both brick-and-mortar stores and e-commerce sites. More holiday trading is good news for the economy.
In India, which has a consumer-oriented economy, Diwali is a crucial time of year for many industries. Industry and other businesses profit from increased expenses, as well as the retail sector. With Covid-19 restraints lifted, the industry group’s 80 million small and medium-sized companies, which produce more than $1.5 trillion in annual sales, predict that Diwali sales this year will increase 30% from last year. 2021. According to government statistics, India’s gross domestic product increased by 13.5% in the April-June quarter, the fastest rate in a year, as the economy recovered from the devastating effects of the epidemic.
But in recent months, the economic climate has become increasingly difficult. In September, inflation hit a five-month high of 7.41%, driven by rising food costs and Russia’s invasion of Ukraine, which pushed up commodity prices around the world. The Reserve Bank of India, the country’s central bank, raised interest rates for the fourth consecutive month in September due to rising inflation. Due to rising borrowing rates, individuals and businesses can see a decline in spending patterns.
According to surveys of purchasing managers, India’s industrial and service sectors saw a slowdown in activity in September as a result of inflationary pressures. The International Monetary Fund on Tuesday lowered its GDP growth forecast for the country for the current fiscal year to the end of March, from a previous expectation of 7.4% to 6.8%. Most organizations have been lowering their growth forecasts for India. IMF Managing Director Kristalina Georgieva called India a “bright spot on this dark horizon” due to its comparatively rapid development in a difficult global climate.
Despite these difficulties, consumer mood hit a 30-month high in September, according to the Center for Monitoring Indian Economy’s latest Consumer Pyramids Household Survey. This year’s Diwali, the Indian equivalent of Christmas in the West, will be the country’s first season of celebration since the start of the pandemic, with no restrictions related to the virus. Consumer feedback will drive spending, which is the backbone of the economy.
According to figures from the Federation of Automobile Dealers Associations, new car sales increased by 57% year-on-year during the nine-day ‘Navratri’ period before Diwali. Two-wheeled vehicle sales in India increased by 3.7% year-on-year, indicating rural demand. According to the Society of Indian Automobile Manufacturers, car and SUV sales increased 92% year-over-year in September. Maruti Suzuki India Ltd., India’s largest manufacturer, has seen demand for its vehicles rise 20% year on year, led by its premium offering. “The growth statistics were similar in urban and rural locations,” said Maruti chief executive Shashank Srivastava, adding that rising borrowing rates had minimal effect on demand.
Companies have increased capacity as demand for commodities has increased. According to the Reserve Bank of India, the total flow of financial resources from banks and non-banks to the commercial sector nearly quintupled to 9.3 trillion rupees between April and September, up from 1.7 trillion rupees a year earlier. “Non-oil and non-gold imports were resilient, reflecting the continued recovery in domestic demand.” Good monsoon rains and the lifting of pandemic restrictions have accelerated economic activity in agriculture, the service sector and small and medium-sized businesses. In September, the unemployment rate dropped to its lowest level in more than four years.
According to RBI studies, Indian households plan to spend more once the economy recovers and income levels normalize. Much of this spending is on necessities, which have become more expensive in recent months due to supply-side shocks. However, overall consumer confidence is high, indicating a greater willingness to spend discretionary funds. “This holiday season is witnessing significant demand for the first time in three years,” said Gaurav Kapur, chief economist at IndusInd Bank. “Since the beginning of the year, individuals have increased their spending on products and services, mall traffic has increased and airline seat occupancy rates have increased despite high ticket costs.”
Indian companies prepare to meet customer demand
As the country prepares to enjoy the peak of the festive season without COVID restrictions for the first time in three years, Indian companies are recruiting thousands of temporary workers, expanding into smaller cities and rolling out new items.
Around the Hindu holidays of Durga Puja and Diwali, which take place between September and November, much of the country’s 1.4 billion people decorate their homes and buy new clothes, vehicles, phones and other goods. Amazon and Walmart’s Flipkart, two of the biggest names in e-commerce, have already announced significant discounts.
Sales for the upcoming Diwali season are expected to be at least 30% higher than the year before, according to the Confederation of All India Traders (CAIT), whose 80 million small and medium-sized business members produce annual sales of more than more than $1.5 trillion.
After two years of limitations, consumer attitude is “extremely positive,” according to CAIT Secretary General Praveen Khandelwal, who was touring the country this month to urge retailers to stock up and guarantee a wide range of products. to compete. online retailers.
He said that more than 90% of pre-COVID levels have already been reached in terms of demand by CAIT members. While India’s retail annual inflation rose to 7% in August after a three-month decline, Khandelwal said the key was providing customers with alternatives that fit their budgets. To that end, he was organizing seminars for the companies he represented across the country.
Which distributes goods on behalf of e-commerce companies, announced that it has increased its capacity to process 6 million parcels a day and predicts volumes will rise by up to 65% during the holiday season, with much of the growth expected to come from smaller locations. In addition to opening additional centers in several other major cities, including New Delhi, where it already has a presence, Smartr Logistics, which started operations a year ago, announced it was expanding to a dozen largely smaller locations. He highlighted the growing demand during the festival season and his intention to connect smaller cities.
Due to the various celebrations that took place in August, online delivery service Dunzo, which is backed by Indian energy retail giant Reliance Industries, reported a busy month. Demand typically increases by up to 30% throughout the entire Diwali season. To accommodate “much larger volumes during the festive season”, logistics operator Delhivery Ltd said late last month that it will add more than 75,000 seasonal positions around September. A healthy monsoon and impending holiday season are expected to improve demand, but high gasoline prices are a concern, according to industry group Society of Indian Automobile Manufacturers earlier this month.