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7th Pay Commission to have a big impact on consumer spending in specific pockets in August-September 2016

Tata Strategic Management Group report highlights a short window of opportunity for companies in the Indian market                                                                                                                                                                                                           

Mumbai, August 11th, 2016: 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.

Aug-Sep 2016 Disbursement Band
Disbursement Value
Key Durable Categories Likely to Benefit
Low Value
Rs. 25,000 - 50,000
Smart phones (<Rs. 15,000), LED TVs (<32 inch), refrigerators, microwaves, air conditioners, 2- wheelers, washing machines and home improvement products.
Mid Value
Rs. 50,000 - 1,00,000
High Value
Rs. 1,00,000 - 2,00,000
In addition to the above categories, LED TVs (32-40 inch), smart phones (>Rs. 35,000), low ticket size jewellery, 4-wheelers and international holidays.
Very High Value
Rs. 2,00,001 and above
In addition to all the above, large ticket size jewellery and large screen LED TVs (>50 inch)

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”.

About Tata Strategic Management Group
Tata Strategic Management Group is the largest Indian-owned management consulting firm. It provides consulting services in strategy formulation, revenue enhancement, operational efficiency and organizational effectiveness to Indian and multi-national companies. Tata Strategic also assists clients in implementing solutions to realize tangible benefits.
Tata Strategic’s Consumer & Retail Practice partners companies in the FMCG, Durables and Organized Retail sectors to formulate and implement distinctive end to end solutions. We have assisted several global and Indian clients in areas such as market entry and growth strategy, new business entry, commercial due diligence, route-to-market transformations and sales effectiveness transformations.