The current festive season should give a resounding reaffirmation that the economy is back on a steady growth track, and consumers are giving a solid thumbs-up, by spending substantially more on just about every category of consumption of goods and services, compared to the same time a year ago. Accounting for 59 per cent of the country's gross domestic product (GDP) in 2016, the importance of revival of consumer confidence and increase in consumer spending cannot be understated.
Sector after sector show the signs of Indian consumers' munificence. The sales of personal vehicles (both two- and four-wheelers) have shown spectacular growth, year-on-year (y-o-y). Consumer durables and electronics (including mobile phones), clothing and footwear, furniture and furnishings, and leisure travel are some of the many consumption categories that are showing a healthy 10-15 per cent y-o-y growth in the past few weeks. There is every reason to believe the momentum will be maintained in the current quarter (and beyond). Even the somewhat stressed organised food services sector should finally see consumer spending rising, after 8-10 quarters of indifference.
Multiple factors are fortunately converging and providing the much-needed tailwind this time to the economy and to the growth in consumer spending. The most notable of these include a decent and generally well-distributed (spatially and temporally) monsoon, that has not only given fillip to those supplying capital goods and services to the farm sector but doused food inflation to a considerable extent. With a bumper kharif crop under harvesting, rural India is likely to provide a much-needed boost to overall consumer spending this year.
Disbursement of the Seventh Pay Commission largesse will add to the pool of money available for spending in the hands of the beneficiaries. Non-food inflation has been generally moderate this year. While for the middle and lower income strata of society spending on food constitutes almost 35-40 per cent of total discretionary spending, it is much lower for upper middle consumers.
Hence, low non-food inflation directly translates to more money left in the hands of such consumers. Finally, there is much more intense competition this year among retail channels (organised brick-and-mortar retail, e-tail, and traditional retail) that will give a stronger push to private consumption not only in the current festive season but thereafter.
The government can play a supportive role for giving private consumption a further boost, provided it decisively sheds its irrational dogma pertaining to investment in modern retail.
To start with, the Department of Industrial Policy and Promotion (DIPP)'s ill-advised policy guidelines relating to e-tailers have to be scrapped immediately. It is not DIPP's business to interfere in the free market process by trying to impose impractical and unimplementable restrictions on pricing and discounting by various e-tailers.
The government should completely do away with the maze of impractical restrictions on foreign investment in retail. With a growing economy, and rising consumerism, there is enough room for traditional retail, brick-and-mortar organised retail, and e-tail to grow for several years to come without impacting jobs - in fact, many millions of more jobs will be created if investment in retail is completely opened. More volume of consumption, on account of prices lowered by heightened competition, will also assist India's manufacturing sector in a big way.
Hence, this revival of Indian consumers' confidence and increased global investors' interest in India augurs well for Indian economy, and manufacturers, marketers and retailers of consumer goods. The government should take note of this, and take advantage of the same by creating a supportive, liberal policy framework.
Arvind Singhal
Chairman and Managing director, Technopak
Chairman and Managing director, Technopak
