New Delhi: Tata Strategic Management Group, the largest Indian owned management consulting firm, today unveiled a report titled ‘Un-Locking the 7th Pay Commission Bonanza’. The report highlights several cities and the consumer categories that will expect upswing in sales due to the 7th pay commission thus presenting a window of opportunity for firms to target large revenue growth in specific geographies.
As per the report, implementation of the recommendations of the 7th Central Pay Commission will result in an initial disbursement of ~Rs 45000 Crore to central government employees and pensioners between August and September 2016. 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.
Another large sum of ~Rs.34,000 Cr is likely to be disbursed for Allowances post submission and acceptance of the report of the Finance Ministry Committee in Jan/Feb 2017.
The report 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% of the total disbursement in this period while smaller cities like Lucknow and Nagpur are likely to witness higher disbursements than larger ones like Bangalore and Pune.
The top five states namely Delhi, Maharashtra, UP, West Bengal and Andhra Pradesh will account for about 50% of the disbursement between August and September 2016. Among cities in the country, Dehradun, Lucknow, Nagpur, Jabalpur and Allahabad make it to the top 10 list of cities ahead of metros of Bangalore and Ahmedabad.
There is a city-wise non-uniform distribution of employees by disbursement band across the country. Their numbers in each city will determine the categories of durables most likely to benefit by focusing on that city.
The TSMG report mentions that more than 30 lakh central government employees will have the propensity to purchase electronic durables, appliances and home improvement goods. 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, 4.5 lakh central government employee households will have the capacity to spend on big ticket purchases like 4 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 Oct’16.
Commenting on the study Mr. Pankaj Gupta, Senior Practice Head, Consumer and Retail, Tata Strategic Management Group said that, “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”.
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