After a long wait the Government has finally implemented the recommendation of the Sinha committee to implement the change in the salaries of the Government employees. The increase in salaries would be effective 1st January 2016 and will be a big boost to the earning of the one crore employees and pensioners .
The increase is substantial and the minimum wage is being raised from Rs. 7000 to 18000 – 257 percent. In value terms this means an additional out flow of Rs 1,02,100 crore by the government and consequently increased income for the employees.
So what is the implications for the consumer durable industry?
1. 50 lakh Government employees would be getting a salary hike of 257 % . Assuming that 25 percent of the money would be required to meet inflationary costs it would leave a substantial portion of the earning to improve life style . This would automatically mean demand for household goods and white goods.
2. Increase in earning would also drive demand for new housing which In turn would
Create demand for new household goods like air conditioner, white goods and electronics. Also to bear in mind is the fact that one of the main change is that the employees would get advance towards housing of maximum 25 Lakhs up from amount of 7.5 Lakhs earlier.
3. The increase in salaries are effective 1st January 2016, and the arrears would be paid out to the Government employees in the August salaries. Which translate to approximately Rs. 50, 000 CR additional disposable income available for spending. This combined with a good monsoon, good economical scenarios would significantly improve the customer sentiment. With the increased bank Balances the Consumer durable companies can look forward to a bumper sale in the coming festival season and beyond also.
In the end the companies that come out with innovative marketing plans such as upgrade offers, fiancé offers etc. would come out as winners.