The Diwali downturn

Vijay C Roy in Chandigarh

Fist thing first: this is no spoiler for your festival plans. Take it as a market teaser, a business buzz meant to bring home reality of the moment. So, pause before you take your pick: Nandani Singh, a homemaker from Chandigarh, wanted to replace her existing air-conditioner with a new all-weather Split AC. When she approached the local dealer, she learnt that air-conditioners attract 28% GST (Goods & Services Tax). Taken aback, she decided to put it off.

Like her, there are many across India either postponing the purchase or buying things considered an absolute must this Diwali. There is grey market, of course. The market lethargy is being blamed on high GST rates chiefly on white goods, crackers and construction material. Plus, there is a cash crunch.

“We have surveyed many cities. The feedback received by traders is that there has been a steady decline in sales which is around 35-50% depending upon the city. Preliminary estimates suggest that there has been an average contraction of around 36% in sales across India ahead of Diwali,” says BC Bhartia, president, Confederation of All India Traders (CAIT).

Diwali sales, including gift items, sweets, crackers, white goods, furniture and construction material for renovating a house are estimated around Rs 25,000-Rs 30,000 crore. 

Traders say most people go for things like refrigerator, washing machine, air-conditioner, geyser, microwave etc. during Diwali. The placement of household electronic and electrical appliances under the 28% slab is a big dampener in the retail market. Traders say placing things as basic as a fridge and washing machine under the same GST bracket shows that government still consider them as a luxury. Bhartia says people are awaiting some tax relief even for house renovation essentials. 

Job losses, liquidity shortage and high interest rates are the other contributing factors. “The unemployment level is at almost 11-month high. How can anyone expect people to have a Diwali ball in such a situation?” questions an economist working with a think tank. The United Nations International Labour Organisation (ILO) released its 2017 World Employment and Social Outlook report early this year. It found economic growth trends lagging behind employment needs and predicted rising unemployment throughout 2017. “Unemployment in India is projected to increase from 17.7 million last year to 17.8 million in 2017 and 18 million next year. In percentage terms, unemployment rate will remain at 3.4 per cent in 2017-18,” the report said.

Blow to Chinese goods

An Associated Chamber of Commerce and Industry (ASSOCHAM) survey has said there seems to be a decline of about 40-45 per cent in consumption of Chinese products this Diwali in comparison with the last year. The most sought after Chinese items are fancy lights, lampshades, Ganesha and Laxmi idols, rangolis and crackers. As per the findings, this Diwali, people are preferring desi products.

“The demand for electronic items such as LCDs, mobile phones and other items made in China has also declined by 15-20%,” said DS Rawat, secretary general ASSOCHAM. The industry body interacted with wholesalers, retailers, traders in cities of Ahmedabad, Bengaluru, Bhopal, Chennai, Dehradun, Delhi, Hyderabad, Jaipur, Lucknow and Mumbai to estimate the demand for Chinese products.

According to an estimate, the value of Chinese goods sold in 2016 during Diwali was around Rs 6,500 crore. Of it, over Rs 4,000 crore went for Diwali-related items.

Firework ban

This seems the most affected area as most manufacturing units belong to the medium and small sector. Demonetization, GST, and the recent Supreme Court ban on firecrackers in Delhi and NCR have pushed the sale to the rock bottom. 

In India, Tamil Nadu accounts for 85% of all crackers sold in the country. The total annual estimated turnover of the firecracker industry is about Rs 4,000 crore. The industry employs over 300,000 workers. Another 500,000 are engaged in related industries — packaging, printing, paper rolling transportation and the like.

“Taking into consideration the high tax slab of 28%, the units cut down production by half,” says K. Mariappan, secretary, Tamil Nadu Fireworks Manufacturers’ Association. He said the Supreme Court’s ban order for Delhi and NCR may extend to other states as well. “We are a highly regulated industry and banning our products, without taking into account the consequences, can sound the death knell for the units.” 

Many firecracker manufacturers are clueless about their future and don’t even know how they would pay wages to workers. “The industry is deeply worried about job losses and the resultant livelihood problems of the workers,” says Mariappan.