Hard-pressed traders forced to offer bigger discounts during Diwali season
Reserve Bank of India study shows consumer confidence continues to fall
Business has lost some of its glow for Nishant Tulsiani, the founder of Anaqa Jewels, as the festive Diwali season gets under way in India this year.
The Mumbai-based jewellery company has witnessed a 35 per cent year-on-year decline in sales in the run-up to the Diwali holiday, with the economic backdrop in India weakening.
“What we notice is that people are resorting to buying smaller items like bracelets and rings rather than buying sets,” says Mr Tulsiani.
Diwali this year started on Friday and runs for five days. The festival of lights is the peak of the broader festive season in the country.
It's traditionally a time when Indians shop for big ticket purchases, and businesses from shops to car dealers and even property developers launch special offers to entice customers.
But this year, Mr Tulsiani explains that “peer pressure” has forced him to slash prices to a greater extent than he is comfortable with, in order to compete with the rest of the market. He says he marked down his prices up to 50 per cent for a sale at the start of this festive season compared to up to 30 per cent last year.
Many other business owners are equally worried about the slowdown in consumer demand.
A consumer confidence survey by the Reserve Bank of India, the country's central bank, released this month reveals that sentiment has weakened in India in recent months. Household sentiment on the general economic situation declined to a reading of -14 in September compared to -1 in July, while perception of the employment situation dropped to -24.5 compared to -13.1.
Abneesh Roy, the executive vice president at Mumbai-based Edelweiss Research, says the July to September quarter “is likely to mark the slowest volume growth for consumer goods companies” in India in more than two years and there will not be an “immediate uptick”.
Fitch Ratings on Thursday slashed its forecast for India's GDP growth in the current financial year to 5.5 per cent from 6.6 per cent, citing a credit squeeze due to challenges in the non-banking financial sector. It said that “both domestic spending and external demand” had lost momentum.
Weak consumer demand was a factor in India's economy slowing to a more than six-year low of 5 per cent in the April to June quarter. In turn, people are avoiding making purchases because of the gloomy economic situation, retailers say.
“The economic slowdown definitely has had a major effect,” says Nanki Papneja, the co-founder at designer fashion brand Limerick by Abirr n' Nanki, based in New Delhi.
“And luxury is the first segment that gets affected. People are not out to spend and they just want to save, so it takes a toll.”
Ms Papneja's company had seen double digit growth every year since it started retailing four years ago, but this year she says that “it hasn't grown at the same pace and it's not very good right now”.
She adds that she believes “the government should focus on creating more and more demand at all levels of society”, and is not confident that recent measures to help kickstart the economy in the run-up to the festive season have helped get people spending.
Steps that prime minister Narendra Modi's government has taken in an effort to boost sentiment include a reduction in corporate tax rates to 22 per cent from 30 per cent, announced last month, and packages to help the infrastructure and exports sectors.
“While these measures are not limited to the festive season, they were announced shortly before this critical period kicks in and the unspoken intention — to increase confidence and thereby nudge consumption while it is at its traditional annual high — is hard to miss,” says Anuj Puri, chairman of Anarock Property Consultants.
He is optimistic that the efforts could give a bit of a push to home sales in India.
“With various government interventions and proactive deal-sweetening by developers in place, the stage is hopefully set for the last quarter of 2019 to witness increased housing sales,” says Mr Puri. “Realistically, we can look forward to a minimum housing sales increase of between 5 to 7 per cent in the upcoming fourth quarter of 2019.”
But he adds that this “is still far below the increase of 20 to 25 per cent witnessed during the boom years”.
As in previous years, developers this season have launched special property deals to tempt potential buyers, including upfront discounts, waived stamp duty and registration charges, free reserved car parking, and free modular kitchens,
Car manufacturers in India have also come up with aggressive offers as vehicle sales plummeted in the country this year, resulting in temporary factory closures and hundreds of thousands of job losses in the sector. These deals include steep cash discounts and extended warranties.
Businesses are, however, saying that at least the festive season represents a pick-up in demand compared to the rest of the year.
Rajan Amba, the chief operating officer at online jeweller CaratLane, says “in general the market has been soft this season”, but that “great offers” and the fact it is a relatively new brand that has been expanding rapidly means it is having “a good run” during this festive season.
“Diwali is the one season in India where most people break the shackles of that low sentiment and try and come out and use that opportunity to buy things that they've been wanting to buy for a long time but have not been able to,” says Mr Amba.
He says that “post the next few days, we'll do a postmortem and we'll better understand [how things have gone]”.
Vikash Pacheriwal, the co-founder and chief executive of clothing brand Raisin, which only launched a year ago, says it is also growing on last year because it is a new brand “but demand is not that great generally because of the economy”.
There are some retailers who are happy with the festive season so far. “We don't see a down trend,” says Manoj K Agarwal, chief executive of Viviana Mall in Thane, just outside Mumbai, adding that the shopping centre is witnessing higher footfall and earnings per customer compared to last year.
Others are hopeful that there is still time for things to pick up over the coming days and as the wedding season approaches.
“The economic slowdown has affected the Indian consumer’s spending power and therefore the festive mood has generally been subdued so far,” says Nohar Nath, chief executive of Kiabza, a Mumbai-based online fashion company. “Sales, when compared with the same period in the previous year, have been lower but with higher retail discounts and offerings it will pick up.”
He believes demand “will eventually pick up on account of the strings of reforms introduced by the government”.
There are also hopes that the government might make more announcements soon that will help stimulate consumer demand — for example, rumours are circulating that personal taxes could be eased.
Mr Tulsiani says he wants the “government to intervene” to boost consumer spending and explains that reducing the goods and services tax rates would help improve demand.
He's not too hopeful of much festive cheer this year, however.
“I think we need to wait for the second quarter of next year for things to get better,” says Mr Tulsiani.
Updated: October 26, 2019 04:45 PM