EDITALK

Bharat - Makeover Time Begins!

So as we all say Goodbye to the old financial year this month and move into the new Fiscal 2024-2025 next month, the news about the pattern of buying new products in India, looks to be good, positive and healthy on the whole. Discretionary spending is definitely on the increase, which in a way also spells good omen for the Indian economy, which as a direct result of this aspect, is moving towards rapid growth. Today, there is a major thrust towards manufacturing, an infra effect one could say, with the addition of physical and digital infra projects and logistics. All these factors are responsible for reshaping consumption patterns, thus driving spends. Goldman Sachs published a report recently, 'The Rise of Affluent India". It has some fascinating insights for us. Hence, if one truly believes in India's growth story, it would be worth one's time to know some of the details. At the outset, let's first get-to-know the term - 'affluent' population for a better understanding of the scenario. The affluent population in India, refers to those individuals or households that have a relatively high level of wealth or income compared to the rest of the population. Affluent individuals in India often have significant purchasing power and hence enjoy a comfortable lifestyle, with access to luxury goods, upscale services, as well as many other premium amenities, including travel and fine-dining. They are often targeted by marketers of luxury brands and high-end products and services. But it's not only about the affluent. Today, India has a burgeoning middle class, which too is expanding rapidly. Until 2022- 2023, rich households, which constituted merely 55% of the total households, drove nearly one-third of all discretionary spending across the country. But this scenario has begun to transform dramatically now, because the per capita income levels are expected to grow by 10% CAGR to about $5,200 in 2031 from $2,400 in 2023. By 2031, India will hence have added about 75 million middle-class (Rs. 5 -30 lakh annual household income) and another 25 million rich households (more than Rs. 30 lakh annual income). The total share of these segments will be 56%. Their higher per capita income levels from what these used to be earlier, will see these households command a higher share of discretionary spends. Middle- class households will drive 53% ($2.7 trillion) of total consumption, while the rich households will drive another 26% ($1.3 trillion) as compared with 48% and 17% of today, respectively. Therefore, it is surmised that the Indian consumption economy would add around Rs. 245 trillion of incremental consumption expenditure between now and 2031. Those who are upgrading to middle-class and rich segments will drive 15-30% of consumer durables. The trend is also towards premiumisation - where consumers display a growing preference for higher quality premium products and services. It will be driven primarily by the middle-class and affluent consumers, as they upgrade or expand their choices for branded offerings. This trend has already become visible in Metro and Tier 1 cities, while it's also now begun to show up in Tier2 and 3 cities of India. Consumer spending is an important factor that affects economic growth and development in any country. It is projected, that in the future, India will be among the powerhouses of Asia in terms of growth in GDP, consumption, and wages. Several factors are affecting this consumer spending pattern in India such as: the growing income levels resulting in more disposable income with individuals, changes in prices, the introduction of new products, increased literacy, growing brand consciousness, and rapid urbanization to name a few. It is also observed that as disposable income increases, consumers prefer branded goods. So, for all companies whether they be big, medium or small, it is high time they realise and appreciate, that creating one's own brand and brand story has become absolutely necessary, if they have to make their existence felt by the present-day consumers. Moreover, increased exposure to global trends has become a major influencing factor. India's economic growth has led to increased disposable income, especially in urban as well as the equally-fast developing and already developed Tier 2 & 3 cities, including several rural areas. Hence, there is a growing emphasis now on quality, uniqueness and premium experiences. These are new opportunities come up for most industries, albeit not without challenges. Speaking about our own horological industry, the big players have already established their brands and brand stories, going along with the "Make in India" program, as leaders, which has to continue with vigour and patriotism, leaving behind short term solutions in supporting the vendor community of India, as many-a-times, despite the best wishes, we cannot compete with specialists of malpractices when importing. It is equally important, that they also be a guiding example to the medium and smaller companies of the country, to create their own brands and brand stories by crafting and offering unique and innovative products, which catch the eyes of today's discerning consumers. In other countries, even the medium and small players are known to create uniqueness in the products they offer, such that all co-exist together healthily. This should become the Mantra, of Indian players also. Side-by-side, as a humble suggestion, the government too, should impose Strict Anti Dumping Duties/Minimum Price Barriers on imports of spares and components that are used in watches and clocks, and even complete watches from other countries, to ensure, that there is no disparity of any kind existent, and a Win-Win situation is created for all players, in order that the grey market is contained and its growth arrested, to some extent, if not all. In short, they should not be permitted to enter India without payment of such duties. This will definitely help in growing the future prospects of this industry. The other good news is that the present government, is already doing all it can to propel the ease of doing business for all sectors. With this as its well- meant and focused objective, the laws, rules and procedures are therefore being regularly updated or revised, so that businesses work better, perform better and thrive. However, with the best of its intentions, the government too, must appreciate, that framing new laws can at times also pose some hiccups, as has happened very recently with the new payment rules introduced by the Finance Ministry for MSMEs. Although, these new rules have been promulgated to protect the interests of MSMEs, they have at the same time raised concerns in the market. The situation is such that many small businesses are now cancelling their own MSME registration. As per this new payment rule for assessment year 2024-2025, customers purchasing from MSMEs with turnover below Rs 50 crore, will have to settle the payment for goods purchased from MSMEs within 45 days of delivery. Apart from this, the payment of pending payment on an MSME should be settled by March 31, 2024. If buyers do not adhere to the new payment timeline, the outstanding payments to MSMEs will be treated as taxable income. The new rules are indeed a positive move towards the growth of an organisation in the coming times, as they will bring in more liquidity and assurance of payment. But, it is as much a known fact, that each and every customer who purchases any product or service, is already governed by a particular credit cycle with his vendor, in which he operates his buying as well as payments, which differ on a case-to-case basis. With this new law enforced with immediate effect, many such customers will therefore face difficulties, as their inflow and outflow of funds will consequently stand adversely affected. And so, while all looks to be going hunky-dory for the present at least, as far as the future goes, some serious thinking needs to be done, both by companies to offer unique and quality products and brand stories, so that they continue to grow, as well as by the government, to make its new law for MSMEs more conducive and consumer-friendly, along with a more relaxed time-frame, to enable them implement the same. This will augur well, for all, as the country's Makeover Time Begins, and we head forcefully towards Viksit Bharat, in the new Financial Year 2024-2025.

Hemal M. Kharod