Demand is dead; rich or poor, no one has liquidity. Lakhs have lost their jobs and buying has come to a standstill right before the festive season. Is this India’s worst Diwali?
The festive season in India runs across October with highlight festivals like Dussehra and Diwali. Market expectations run high and the time is considered the best opportunities for businesses in the year. The lower and middle-class income groups shell out their savings while the rich loosen their purse strings on new products and celebrations.
With the major economic slowdown of the decade, we are set for India’s worst Diwali and festive season ever.
While the entire globe is hit with an economic downturn, Asia’s currencies have been weakening amid troubles brewing from China-U.S. trade talks. But India has its own set of problems too. It was exemplified by the royal slide of the rupee, which hit its lowest plunging 3.4%, as one of the region’s worst performers in 2019.
Cost pressures have increased across strata and consumers are unable to find any money to rejuvenate consumption. And with less than a month left in the arrival of the Indian festive season, the economic slowdown is showing no signs of improving.
#1 Villages don’t even have money to buy lamps and oil
The rural economy of India is at an all-time low. The village population has cut down on basics like biscuits, clothes and cosmetics. Rural wage is at a deathly spiral for the last six years. While it was 14.6% in 2013-14, in 2018-19 it stands at 1.1%. Not only is Rural India unable to spend, the income levels are so low that even the consistent savings have gone down.
As per data, 833 million rural Indians have stopped buying new clothes. As per SBI Ecowrap, the weighted contribution of clothing (a non-discretionary item in villages) plunged from 39 bps in June 2018 to almost zero in June and July 2019. This has been a fatal blow to the Indian FMCG sector which counts India’s 65,000 villages as half of its overall sales.
#2 Cities have stopped buying anything that’s not a necessity
On the other hand, while urban Indians haven’t had to sacrifice basic necessities, they are staying clear of big-ticket purchases like cars, jewellery and real estate. Similarly, the services sector which has its dominant clientele in urban areas grew much slower in August with demand further weakening in cities.
India Service Sector Demand
Although the FM Sitharaman’s recent measures may have sparked a year-high business optimism, there is no demand. The economy grew at an annual rate of 5.0% last quarter, slowest in over six years. A new business sub-index evaluated overall demand in the services industry slid from a near three-year high in July of 53.9 to 51.0 in August.
#3 Auspicious Gold is no longer on the Diwali spending list
Gold is India’s choice of investment. The precious metal is bought with fervour during the festive season. However, in August, India’s gold imports dived 73% from 2018. In the course of the economic slowdown, is gold’s lowest level in three years. Gold buying has significantly come down as market prices have hit a record high. Furthermore, a hike in import duty has also hindered retail purchases.
India will see a significant fall in Diwali gold buying in 2019 as per the current numbers. It imported 30 tonnes of gold in August, when the number stood at 141.47 tonnes a year ago. India’s imports fell 62% to $1.37 billion last month. And with no consumption, no savings and lakhs of job layoffs, the market is staring at underwhelming festive business.
#4 Empty showrooms means no good luck and happy miles this Diwali
Widely covered, the Indian automotive industry is witnessing the worst downturn in two decades. Car Market has contracted by almost 25%. Two-wheeler sales have declined 14% in the fiscal year. With no certain signs of market improvement and the uncertain job scenario, not many expect to buy new vehicles this Diwali festive season.
The trend where buyers flocked showrooms is of the past. Today automakers are literally selling on the doorstep. With uncertainty during the peak period of purchase, companies have boosted alternative sales and marketing methods with special campaigns and record-high discounts for the festive season.
#5 Diwali Bonus: Lakhs of Unemployed families have nothing to celebrate
Perhaps the biggest factor of the Economic Slowdown that will contribute to India’s worst Diwali is the current state of employment in the country. Unemployment rose to a 45-year high. 42% of the skilled youth (15-29 years) and 62.3% unskilled were not in the labour force. Major industrial and services sectors have been the worst hit.
The auto sector has lost over 2 lakh jobs in the last few months. Similarly, FMCG and other industrial products have seen stagnating production and thousands of layoffs. This spells that lakhs of families have recently lost their sources of income, leaving them incapable of indulge in any kind of significant spending this festive season. And while the government is trying to bring fresh impetus to the economy, dying demand, faltering market expectations and intense liquidity crunch has left Indian households hapless and many staring at the worst Diwali of their lives.