India Inc, Centre must learn the right lesson from surge in festival spending

| Updated on November 03, 2019

Diwali sales boost shows that in these difficult times, it is better to drop margins and push sales volumes up, rather than hold on to high margins and not sell at all

Indians splurged ₹19,000 crore in just six days at Amazon’s ‘Great Indian Festival’ and Flipkart’s ‘Big Billion Day’ sales. The combined gross merchandise value of the e-commerce majors from this season’s festive sale was 30 per cent higher than 2018 and 77 per cent more than the year before. Elsewhere, India’s largest carmaker Maruti Suzuki posted its first increase in sales after seven months. It sold 48,000 cars on Dhanteras day alone. The white goods and home appliances sector too registered a 25 per cent increase in volumes. What do these numbers indicate? Some would like to use these facts to deny the obvious slowdown. But the real message for manufacturers, retailers and the government is that consumers are willing to spend if they see real value. In other words, if the price is right. When consumer confidence is low, as the RBI’s bi-monthly Consumer Confidence Surveys reveal, people tend to hold back their spending. They did just that, and saved up over the last few months. But when brands enticed them with good discounts, they dropped their reticence and took the bait. There is a signal lesson here for manufacturers, who have been looking to the government to bail them out with tax sops — in these difficult times, it is better to drop margins and push sales volumes up, rather than hold on to high margins and not sell at all. Some manufacturers appear to have understood this, and have extended their ongoing discounts till the end of the year. This could bode well for the economy.

But the Centre, which should be happy that the industry is doing its bidding (its initial plan to offer people sops to boost consumption was given up as fiscal math went haywire), may come in the way. Media reports suggest that Centre is looking into the deep discounts that e-commerce giants offered to see if they had violated any foreign investment rules. This followed the Confederation of All India Traders (CAIT), a body representing the brick-and-mortar retailers, accusing them of adopting predatory pricing. Amazon and Flipkart have denied these charges. The CAIT also blamed the fall in GST revenues on the deep discounts offered by the e-commerce players. For a government which has achieved just 37 per cent of the GST target in the first six months, this charge may sound compelling. But discounts are an established practice to boost sales in a depressed market, and as long as the GST is paid on the final price, there is no irregularity.

Accusations of predatory pricing should be referred to the Competition Commission of India, which is best placed to handle it. It is after a while that the consumers have got some pricing power. Allowing market forces to have free play has always worked in the long run. Competition laws should be implemented effectively to curb anti-competitive practices. Using policy power to force markets in a certain direction distorts markets and is anti-consumer.

Published on November 03, 2019

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