Bonus for companies

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The recommendations of the Sixth Pay Commission submitted to the Union finance minister have cheered both, 4.5 million government employees and corporates in the country. While the employees can look forward to a hike of around 30-40% in their salary package with retrospective effect from January 1, 2006, Companies expect their revenues to swell as a result of the likely increase in consumer spending.

This optimism can be seen in V Ramachandran, director, sales & marketing, LG India, who is gearing up to exploit the potential business opportunity. “The combined effect of the reduction in the threshold limit of the personal income tax, rural benefits to farmers and now the Sixth Pay Commission’s recommendation points to a favourable year of business.” He adds, “The money is going to flow in two directions. Some consumers are going to upgrade and others are going to expand the basket of their products.” The durable major is planning a big marketing initiative to promote lifestyle products focussing on this new consumer base with additional disposable income.

“Government employees in different salary slabs will have different aspirations. For the urban customer, we plan to promote high-end product ranges of home theatres and flat panel displays. For the semi-urban customers, we will push semi-auto washing machines followed by 21-inch TVs and refrigerators,” says Ramachandran.

The Sixth Pay Commission recommendations come at a point when there are enough signals that the Economy is slowing down. Hardening of interest rates had an impact on industrial production as the growth in January registered a 10-month low of 5.3% against 11.6% in the same month last year. It was because of an unexpected decline in production of capital goods and a continuing downtrend in consumer durables.

Now, the beleaguered consumer durables sector, stung by a tight monetary policy and poor off-take could have something to cheer about. TK Bhaumik, chief economist, Reliance Industries Ltd, says that the arrears would certainly give a boost to the consumer goods sector. “A part of the arrears would go for savings and rest would be used to purchase goods. Depending on when it is implemented, the manufacturing and consumer goods sector can look forward to stronger growth,” he says.