7th Pay Commission: Durables, auto to gain from Rs 45,000 crore bonanza

New Delh: Sales of consumer durables and automobiles are to set witness a significant surge in the next couple of months as the government is expected to disburse an initial amount of Rs 45,000 crore in August and September to implement the 7th pay panel recommendations, says a report.

Tata Strategic Management Group's report titled Un-Locking the 7th Pay Commission Bonanza highlights several cities and consumer categories that will expect upswing in sales thus presenting a window of opportunity for firms to target large revenue growth in specific geographies.

As per the report, implementation of the recommendations will result in an initial disbursement of Rs 45,000 crore to central government employees and pensioners during August and September.

"If a large portion of this amount were to be spent on durables, several categories can expect significant sales uplifts.

"Potentially, more than 30 lakh households can purchase large appliances or high end smart phones or two-wheelers or home improvement products, more than 8.5 lakh households could avail an international holiday and more than 4.5 lakh households can purchase a car," it said.

Further another large sum of about Rs 34,000 crore is likely to be disbursed for allowances post submission and acceptance of the report of the Finance Ministry Committee in January-February, it said.

"Companies that can intelligently identify these pockets of demand and focus their attention on specific employee bands are likely to reap benefits from the one-time discretionary consumer spend before the festive season this year," said Pankaj Gupta, Senior Practice Head, Consumer and Retail, Tata Strategic Management Group.

The report also predicts that demand is unlikely to be uniform across cities and states.

"The states of Delhi, Maharashtra, UP and West Bengal will account for more than 40 percent of the total disbursement in this period. Smaller cities like Lucknow and Nagpur are likely to witness higher disbursements than larger ones like Bangalore and Pune," it said.

The research report said companies need to understand the large disbursement destinations and act quickly between now and September 2016 to lock in the one-time discretionary consumer spend.

The top five states -- Delhi, Maharashtra, UP, West Bengal and Andhra Pradesh -- will account for about 50 percent of the disbursement between August and September.

Among cities, Dehradun, Lucknow, Nagpur, Jabalpur and Allahabad make it to the top 10 list of cities ahead of metros of Bangalore and Ahmedabad.

The report said with annual all-India volumes of 50 lakh to 110 lakh units across most durable good categories, these households represent a high growth opportunity if a sizeable portion of the disbursements were to be spent on them.

Similarly, the report said 4.5 lakh central government employee households will have the capacity to spend on big ticket purchases like four-wheelers, more than 8.5 lakh employees could avail international holidays and almost all could be targeted by the financial services industry for various investment and savings products.

"While in some of these categories there may be outright purchases, the remaining can be made possible with EMIs due to monthly disbursements from October 2016," it said.