India houses a population of around 140 crore. Of this, based on the 2011 census, around 80% are Hindus which gives a potential consuming class of 112 mn. This class is important because for the festival season which has already started with Raksha Bandhan in August, and a more localised Ganesh Chaturthi in September, there would be two other big events of Dussehra and Diwali in the coming months. The 112 million group would mean around 28 million households.
The People Research on India’s Consumer Economy (PRICE) estimated that in 2020-21, 4% of the households were rich, 30% in the middle class, 52% in the aspiration class and 14% as destitute. Assuming that the top three income categories of population spend Rs 50,000, Rs 20,000 and Rs 10,000 on these four festivals on a conservative basis, this would mean a spending of Rs 3.75 lakh crore this season. Assuming people belonging to other religious groups also spend money on their festivals ending with Christmas, the overall kitty could be as large as Rs 4.0-4.5 lakh crore. A more aggressive number would be a multiple of 1.5 which can be Rs 6.75 lakh crore. This excludes homes and vehicles that would be purchased based on leverage and would not directly add to demand for consumer goods and services.
This is a very large sum that should be spent and would be typically on clothing, sweets, travel, amusements, donations in places of worship, decorations, fireworks, etc. There is a large circular flow of money because this is the time when individual households also pay a bonus for the domestic help which also help the “destitute” (earning less than Rs 1.25 lakh per annum) spend money on these occasions. Hence the festival economy has a far-reaching impact on the state of economic growth.
First, such spending is agnostic to location as both urban and rural economies get a boost as these traditions are followed across the country. In fact as the harvest of the kharif crop would commence during September and carry on till December, there would be an inflow of farm income to the cultivator homes. The monsoon has been good this year and it is expected that with a normal crop, the disposable income of farmers should increase. It must be pointed out that last year, this was not the case and a lower crop did impact farmer income. Another positive is that the reservoir levels have risen to higher levels than last year which will support the rabi sowing which begins towards the end of the calendar year.
Second, the demand for products and services would spread to all producing units. While the larger brands would have an impact on those in the urban areas where the population tends to have large spending capacity, the units in the MSME sector will receive a boost as a large part of the spending is on relatively lower value products. This includes paper products, lights, religious emblems and statues, savouries, etc. Therefore all the B2C or business to consumer activity would witness a boost this season.
Third, the spillover effects of higher demand for goods will be witnessed in the retail segment. The organised retail sector as well as kiranas will receive a boost during this season. The same will hold for ecommerce platforms which have grown manifold in the last five years. The volumes which are transacted on these platforms are impressive, and with deep discounts being offered during the festival time, will accelerate sales growth.
Fourth, the service sector involving tourism which includes both hotels and restaurants as well as transport services will witness an upswing. This is already being seen in the air fare rates which show a seasonal upward trait in the time period around the festivals. It was seen that post covid there was a tendency for such spending to increase manifold. To begin with it was “pent-up demand” but subsequently it appears to have become a habit in the middle class group too. Growing affluence combined with these festivals also coinciding with the holiday season for children make a perfect combination for higher spending.
Fifth, the FMCG sector is posed to display a sharp recovery this year. This is something the sector has been waiting for quite some time with lower disposable income and inflation coming in the way. It does appear that inflation is moving downwards which should help to restore demand that had ebbed in the last 2-3 years. Some of favourite gifting ideas at the household level are dry fruits, chocolates, cookies, branded savouries etc.
Sixth, the festival season is also the time when households enter into deals with real estate companies to buy a home. Hence it is normally a book time for the real estate business which sees an uptick in bookings for new dwellings. The same holds for the automobile industry where there is an increase in bookings of two wheelers and cars as festivals are auspicious occasions when such assets are purchased.
The next few months will be critical from the point of view of several industries which have the household as their target customers. The real estate and auto industries would be the larger segments where the value of business would be of high value. The others will be contingent on how widespread is this upsurge in demand. Given that there was a lull in spending in the last couple of years partly due to higher inflation, normalisation of conditions should help in reviving demand this year. With the monsoon being normal, the demand is likely to be broader based across regions. The price points should be more acceptable as companies get into the “festival discount” mode which is visible already for housing as well as automobiles. It does appear that all the prerequisites for a consumer boom are in place this time which will improve capacity utilisation in these industries which in turn should set in motion the virtuous cycle of investment.
The author is Chief Economist, Bank of Baroda and author of ‘Corporate Quirks: The Darker Side of the Sun’. Views are personal