By Ambud Sharma
The budget is cause for excitement as the government has been given an even stronger mandate this year than it was in 2014. We believe one of the ways the government will take advantage of such a strong mandate is by implementing an extremely pro-business and pro-consumer budget. The central vision of the Modi government remains economic development and the budget is a crucial tool to realise this vision.
E-Retailers Budget Expectations
E-retailers have captured a significant share of the retail market yet their growth was somewhat tempered last year when government policy restricting ownership of sellers was implemented. On July 5th we expect that the government will reveal a budget that reignites the growth of e-retailers. An indirect way it is expected to do so is by putting more disposable income in the hands of consumers by raising the tax exemption limit for the middle class. Already the most active online segment of buyers, the middle classes response to having more disposable income will be more online purchases.
Today online retailer’s biggest customer base comprises of relatively young middle-class, upper-middle-class and affluent consumers. While a budget that raises the tax exemption limit is unlikely to influence the buying behaviour of affluent buyers, it will certainly influence the behaviour of middle-class and upper-middle-class consumers. More consumers from this segment are likely to buy online after this budget.
The Indian fashion industry is estimated to be worth approximately $70 billion of which e-retailers share at $4 billion is comparatively small, this number is certainly expected to swell after this budget and grow considerably over the following years. Put plainly, when this budget and subsequent budgets put more disposable income in the hands of consumers it will lead them to spend more. Such a budget is expected this year as India is gradually becoming a consumption-driven economy.
Role of Consumption Driven Demand
Consumption is the growth engine of the Indian economy. It accounts for 60% of GDP yet over the last 20 quarters it has been stubbornly unsteady. More disposable income in the hands of consumers will help steady it. This will be accomplished through income tax exemptions and by raising the tax slab.
The government certainly realises that it needs to stimulate consumption to grow the economy. Consumers and businesses realise this as well. A recent poll revealed that the desire to have the tax slab raised is more widespread than the desire for job creation. The plain fact is that more disposable income in the hands of consumers will lead to higher consumption, increased demand, and the creation of new jobs. Clearly putting more money in consumer’s hands thereby generating demand will alleviate some of the government’s problem in creating jobs.
What Online Fashion Retailers Expect
Online fashion retailers serve relatively affluent buyers. Buyers who make online purchases have access to a mobile device or laptop and means to pay for well crafted branded apparel. It’s important to note that demand for fashion apparel is elastic meaning changes in price or income dramatically impact demand. Hence even modestly higher disposable incomes are likely to lead to significantly higher demand for fashion apparel. In the case of accessories, especially luxury accessories, demand is also elastic. Sellers of such luxury apparel anticipate a budget that stimulates demand for their products.
It’s important to note that because the demand for apparel is elastic when consumers who don’t yet shop online have more money in hand they are more likely to buy from online retailers. From the point of view of sellers of luxury apparel and accessories, migrating consumers from the offline space online is important. Buying behaviour is changing, highlighted by the fact that among a significant proportion of urban millennials, all household purchases are made online. Gradually more consumers will shop online yet it’s expected that the current budget will hasten the migration of consumers from the offline space to the online space.
Indian consumers are more willing to pay more for quality fashion apparel and accessories. This is because the right apparel and accessories enhance the wearer’s personality. Already many accessories sold online command a loyal following and an even larger number of people aspire to own such accessories and apparel. When, as anticipated, a consumer-friendly budget is introduced this month it will lead to increased demand for finely crafted luxury accessories and apparel sold online.
(The author is Founder of Escaro Royale. Views expressed are personal.)