Stimulus 2.0: FM's booster to spur consumer spending, albeit marginally

Redirecting LTC to buy consumer goods a dampener for tourism, says industry

Finance Minister Nirmala Sitharaman on Monday announced two special schemes for government staff in a bid to boost consumer demand: a leave travel concession (LTC)-related cash voucher and a festival advance. Economists and India Inc say the tax-exempt travel payout and festival advance will spur consumer spending, albeit marginally.
 

The travel and tourism sector, though, is upset that LTC is being redirected to buy consumer goods.
 

“The festive season is one of the few demand drivers that the travel and tourism industry was looking forward to. The sector was hoping for more tax-based stimulus in the hands of citizens, so that spending could improve. Instead, redirecting the LTC money of government employees to buy consumer goods would dry up funds for the travel sector,” said the Federation of Associations in Indian Tourism & Hospitality.
 

LTC is given for two years in a block of four years. Employees typically encash their LTC in the years they are not travelling, even though this is taxable.

 

Madan Sabnavis, chief economist at CARE Ratings, says that employees may continue with this practice. “While on paper this may seem interesting that the government is giving its employees an avenue to monetise their LTC, it is available for a limited period, that is, till March 31, 2021. Most individuals tend to plan expenditure around discretionary items carefully and may not want to buy a home appliance or other consumer goods just yet. The boost to consumption may not be substantial,” says Sabnavis.
 

This point is endorsed by Sumit Malhotra, director, Bajaj Consumer Care. He says individuals typically dip into their savings rather than utilise a component of their salary to buy discretionary items.
 

“These are tough times, where the propensity to save rather than spend is higher. The salaried class will not utilise LTC to buy consumer goods. Even if some opt for it, it will be restricted, possibly to those who require to do some urgent purchases,” says Malhotra.
 

Following the announcements on Monday, most consumption-driven stocks lost ground at the bourses. The Nifty Consumption index — a performance gauge of consumption-related stocks on the National Stock Exchange — slipped 0.13 per cent. Losses in some of the individual consumer goods and auto stocks were steeper, with Bajaj Auto, Hero MotoCorp, Voltas, Blue Star, and Crompton Greaves Consumer Electricals slipping 1-2 per cent. The Nifty closed in the green — up 0.14 per cent.
 

Despite the thumbs-down by investors, heads of consumer durables companies remain optimistic. They see an uptick in consumption, heading into the crucial Dussehra-Diwali season, which gives them a third of their sales. “I see definite demand for consumer durables as consumers have limited choice to spend on travel and other entertainment avenues during a pandemic,” says Avneet Marwah, chief executive officer, SPPL, which is the exclusive brand licensee of Thomson and Kodak TVs in India.
 

Kamal Nandi, business head and executive vice-president, Godrej Appliances, who is also the president of the Consumer Electronics and Appliances Manufacturers Association, says the measures announced by the government will provide more liquidity to consumers — critical for the industry. “Traditionally, the Indian customer makes his appliance purchases during the festive season. Due to the current pandemic, consumers have appreciated the value appliances add to their lives. By providing more liquidity, it will augur well for the consumer durables market,” says Nandi.
 

Manish Sharma, president and chief executive officer, Panasonic India and South Asia, says the timing is just right. “The measures by the government come at a time when household expenditure is down, impacting consumer businesses. The consumer durables industry lost close to 25 per cent of its overall business due to lockdowns. We are hopeful of recovering a significant part this festive season,” says Sharma.
 

Anil Rai Gupta, chairman and managing director, Havells India, says the initiatives will aid consumer sentiment. “We see an increase in demand for consumer durables. Such initiatives by the government will stimulate consumer demand,” says Gupta.