Modi tax cut fuels US$68 billion festival shopping boom in India
Spending between Sept 22 and Oct 21 increased 8.5% from the same time last year
[NEW DELHI] India’s sweeping consumption tax cut drove shoppers to splurge on items from cars to kitchenware during the month-long festival season, boosting the economy that was slammed with a 50 per cent import levy by the US.
Spending between Sept 22 and Oct 21 – the period between the Hindu festivals of Navratri and Diwali – increased 8.5 per cent from the same time last year, according to data from retail intelligence platform Bizom.
Sales across the country topped US$67.6 billion, with items such as jewellery, electronics, apparels, furnishing, and sweets most in demand, BC Bhartia, national president of Confederation of All India Traders, said in a statement.
Improved sales reflect a turnaround in local consumption, after a nascent recovery in April was cut short by steep US tariffs. The Narendra Modi-led government responded by slashing the goods and services tax from Sept 22 for almost 400 categories of products.
Maruti Suzuki India, Tata Motors Passenger Vehicles and Mahindra & Mahindra – India’s largest carmakers – saw surging monthly sales, as the first major tax cut in nearly a decade made cars cheaper.
Hyundai Motor India saw a 20 per cent jump in sales on the Hindu festival of Dhanteras – an auspicious day for shopping big-ticket items including gold – compared with last year while Tata Motors delivered more than 100,000 cars between Navrati and Dhanteras.
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Mahindra saw a 27 per cent jump in tractor sales as the good monsoon season boosted rural incomes. This and the tax cut spurred more purchases for Mahindra.
Maruti’s production team has been working Sundays to handle the surge in bookings, especially for smaller cars, Partho Banerjee, senior executive officer for marketing and sales said in a post-earnings call last week.
The demand for its entry-level models such as the Alto, S-Presso, WagonR and Celerio is so strong that Maruti dealers now joke about counting helmets left behind in their showrooms by two-wheeler riders upgrading to cars, Banerjee said.
Financial service firms, including Kotak Mahindra Bank and SBI Cards & Payments Services saw strong growth in spending across categories.
“We saw buoyancy in the kitchen category” during the festival shopping, with products like pressure cookers benefiting from the tax cut, Kaleeswaran A, chief financial officer at Crompton Greaves Consumer Electricals, told Bloomberg News.
To be sure, the tax changes also disrupted some Indian businesses’ supply chain and hurt sales as companies and distributors hurried to offload goods at older rates.
In some cases, buyers deferred big ticket purchases from mid-August, when Modi first announced the cut, to end of September when lower prices kicked in.
The sales surge should be interpreted with caution as some of it would be due to a high-than-usual pent up demand, Nomura economists Sonal Varma and Aurodeep Nandi wrote in an Oct 27 note. A correct metric would also need “to account for data trends in the December to January period,” they wrote.
While economic headwinds have eased a bit, factors such as slower income growth, weak labour market and fading wealth effect continue to weigh on sentiment and demand conditions, according to some analysts.
Still, companies are more optimistic.
Crompton’s Kaleeswaran expects the recent sales momentum to sustain through January and beyond. The maker of fans and lamps is tracking growth in real estate, wire and cable segment for signs of buoyancy in household sentiment.
“Some of these green shoots are giving us the confidence” that consumption is moving in the right direction, Kaleeswaran said. BLOOMBERG
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