India’s Diwali Spending Season Shows a Lingering Pandemic Divide
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India’s Diwali Spending Season Shows a Lingering Pandemic Divide

Goods catering to India’s wealthiest are doing well, while demand for entry-level appliances and products appears to be more sluggish

Fri, Oct 21, 2022 9:00amGrey Clock 4 min

India’s peak retail season, which culminates soon after the Diwali festival, is showing signs of robust shopping despite higher prices. But an uneven return to discretionary spending among India’s consumers could spell challenges ahead for the economy, companies and economists say.

This festival season, retail sales in India’s stores are expected to be around $18 billion, up 50% from the same period last year and nearly double those in the pre-pandemic year of 2019, according to the Confederation of All India Traders.

“After two years, the current Diwali festivity will be celebrated with no Covid restrictions, which is prompting the consumers to throng the commercial markets,” said Praveen Khandelwal, secretary general of the trade association. Prices of goods have gone up 10% to 15% since 2019, he added.

Yet this season’s spending shares a key feature of India’s overall recovery—goods catering to India’s tiny sliver of its very wealthiest are doing well, while demand for entry-level appliances and products appears to be more sluggish. India’s economy grew 13.5% from April to June, partly driven by robust growth in spending.

“Post Covid, we really see the divide between the rich and the poor expanding,” said Manish Raj Singhania, president of the Federation of Automobile Dealers Associations, an industry group. As an example, Mr. Singhania pointed to the gap between demand for luxury cars versus motorcycles and scooters, the first vehicle that many Indian families can afford.

Despite being more expensive than before the pandemic, waiting lists for premium cars such as those from BMW and Mercedes-Benz that cost more than 6 million rupees, equivalent to $73,000, are so long that buyers have to wait on average four months to get delivery, he said. “It’s that crazy,” Mr. Singhania said.

The delays are partly due to supply-chain issues, but also because demand has outstripped production. The number of luxury cars registered in India in the first nine months are up 28% compared with last year, according to the automobile dealers group, though they remain 12% below sales in the same period in 2019.

Meanwhile, at the other end of the income spectrum, there has been lacklustre growth in sales for two-wheelers, especially the cheapest variants costing around 60,000 rupees. In the first nine months of this year, sales of all two-wheelers were around 12.7% higher than the same period last year but 18% lower than in the same period in 2019, according to the automobile dealers group.

Narendra Kumar, a resident of a village in the northern Indian state of Uttar Pradesh, said he had saved up to buy a motorcycle two years ago. It would have been the first motorised vehicle in his home. But the Covid-19 lockdowns, followed by two years of reduced farm income—the mainstay of Mr. Kumar’s household—depleted his savings.

Now, buying the bike looks harder than ever to the 23-year-old. The bike’s price has risen by 60%, Mr. Kumar said, while his family’s earnings aren’t back to pre-pandemic levels.

“Whatever plans one had have gotten off track,” he said.

Income inequality has long been reflected in India’s consumption, with the Boston Consulting Group predicting in a 2020 report that the share of spending by the most affluent households—those earning one million rupees a year or more—would grow from 33% of household consumption in 2019 to about half in 2030. India relies on consumption for more than half of its economic growth.

Still, new entrants to the lower rungs of the middle class in the country of more than 1.3 billion people have also been a significant contributor to the economy, especially for certain product categories in a country where per capita income hovers around $2,200 a year.

“At some point, the destiny of the two are related,” said Pranjul Bhandari, chief India economist at HSBC Securities & Capital Markets (India) Pvt. If a big segment of the population is not doing well, it would limit the ability of companies’ to grow and earn profits, she said. “We’ll be punching below our weight,” Ms. Bhandari said.

India’s economy still appears to be a bright spot compared with countries that are bracing for a sharp slowdown, and possibly recession. It could expand by 6.8% in the financial year that ends in March 2023, estimates the International Monetary Fund.

That, however, marks a downgrade from the 7.4% growth the IMF had forecast in July. India isn’t immune to the global headwinds from Russia’s war in Ukraine, which have sent food and fuel prices up, and from interest rate increases in the U.S. India’s rupee has deteriorated to all-time lows against the U.S. dollar, making its import bill more expensive.

Inflation crossed 7% in September, and the central bank has raised interest rates four times this year.

Against this backdrop, lower middle-class consumers—especially in rural areas—are likely to pause before spending on goods that aren’t daily necessities.

Shilpi Jain, an analyst with Counterpoint Technology Market Research, said premium smartphones, those costing above 30,000 rupees ($360), have been doing well ahead of Diwali. In the first six months of this year, demand for the phones rose 26% compared with the same period a year ago. However, the demand for phones that cost less than 8,000 rupees, was 24% lower than the first six months of last year.

Because of shortages in imported components earlier this year, and an increase in their prices, mobile phone companies haven’t offered deals on low-end smartphones this Diwali, Ms. Jain said.

Meanwhile, for refrigerators, sales of smaller, single-door variants have declined by around 15% this year compared with pre-pandemic levels, whereas sales for larger, double-door refrigerators are up by around 30%, said Eric Braganza, president of the Consumer Electronics and Appliances Manufacturers Association.

Some companies are already deploying resources to meet demand from higher-end consumers. The Indian unit of appliance-maker Whirlpool Corp. said in September that it had started manufacturing premium, front-loading washing machines at its factory in south India.

“The kinds of consumers who are buying mid- and premium are actually splurging much more,” Whirlpool Managing Director Vishal Bhola told an Indian business news channel.

Entry-level consumers include the hundreds of thousands of workers who went back to their villages after a nationwide lockdown was imposed in March 2020, leaving them without earnings for a long stretch. India’s economy didn’t fully reopen in 2021 either, as the country grappled with the deadly Delta variant of the coronavirus.

Some labourers remained in their villages even as cities reopened, making do with lower incomes.

Mr. Kumar, the 23-year-old who had to put off his motorcycle purchase, graduated from college in 2020. But because of the lockdowns, he couldn’t travel to a large city to seek work. Eventually, he enrolled in a master’s degree in horticulture, which used up his savings, he said.

Meanwhile, erratic weather conditions reduced produce at his family’s small farm during the past two years. He is worried that unseasonal rains this month could hurt this year’s harvest of rice as well. The upshot: Diwali festivities at his home will be curtailed, with fewer firecrackers and other treats, Mr. Kumar said.

“How will we burst crackers when the pocket is completely empty?” he said.


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Auto dealers across many parts of the country say electric vehicles are becoming too hard a sell for buyers worried about the range, reliability and price of these models.

When Paul LaRochelle heard Ford Motor was coming out with an electric pickup truck, the dealer was excited about the prospects for his business.

“We thought we could build a million of them and sell them,” said LaRochelle, a vice president at Sheehy Auto Stores, which sells vehicles from a dozen brands in Virginia, Maryland and Washington, D.C.

The reality has been less positive. On Sheehy’s car lots, LaRochelle says there is a six- to 12-month supply of EVs, compared with a month of gasoline-powered vehicles.

With automakers set to release a barrage of new electric models in the coming years, concerns are mounting among auto retailers about whether the technology will have broader appeal given that many customers are still reluctant to make the switch.

Battery-powered models have been piling up on car lotsdealers say, as EV sales growth has slowed in the U.S. this year. Car companies have been offering a combination of discounts and lower interest-rate deals in an effort to juice demand. But it hasn’t been enough, because buyer reticence extends beyond the price tag, dealers say.

“I’m not hearing the consumer confidence in the technology,” said Mary Rice, dealer principal at Toyota of Greensboro in North Carolina. “People aren’t beating down the door to buy these things, and they all have a different excuse why they aren’t buying one.”

Customers cite concerns about vehicles burning through a battery charge faster in cold weather or not being able to travel as far as they expected on a single charge, dealers say. Potential buyers also worry that chargers aren’t as readily accessible as gas stations or might be broken.

Franchise dealerships fear that the push to roll out new models will inundate them with hard-to-sell vehicles. Research firm S&P Global Mobility said there are 56 EV models for sale in the U.S. this year, and the number is expected to nearly double to 100 next year.

“I start to think, you know maybe we should just all pump the brakes a little bit,” Rice said.

A group of dealers expressed their concerns about the government’s role in pushing electric vehicles in a letter last month to President Biden.

A Toyota Motor spokesman said the majority of dealers have become “increasingly more confident in their ability to sell Toyota EV products.”

At Ford, the company’s electric-vehicle sales are rising, including for its F-150 Lightning pickup, but demand isn’t evenly spread across the country, according to a spokesman.

Dealers say that after selling an EV, they sometimes hear complaints about charging and the vehicles not always meeting their advertised range. In some cases, customers seek to return them to the dealer shortly after buying them.

“We have a steady number of clients that have attempted to or flat out returned their car,” said Sheehy’s LaRochelle.

While EVs remain a small but rapidly expanding part of the new-car market, the pace of growth has slowed this year. Electric-vehicle sales increased 48% in the first 11 months, compared with a 69% jump during the same period in 2022, according to Motor Intelligence. Sales remain concentrated in a few states, with California accounting for the largest chunk, S&P Global Mobility data found.

The cooling growth has raised broader questions in the industry about whether car companies face a temporary hurdle or a longer-term demand challenge. Automakers have invested billions of dollars to bring more EV models to the market, and many analysts and car executives say they remain optimistic that sales will continue to expand.

“Although the rate of growth has slowed recently, EV demand is clearly moving in the right direction,” said General Motors Chief Executive Mary Barra on a recent conference call with analysts. A combination of more affordable model options and better charging infrastructure would help encourage more people to buy electric vehicles, she said.

There are also varying views within the dealer community about how quickly buyers will adopt the technology.In hot spots for electric-vehicle demand, such as Los Angeles, dealers say their battery-powered models are some of their top sellers. Those popular EV markets also tend to have more mature public charging networks.

Selling an electric car or truck outside of those demand centres is proving more difficult.

Longtime EV owner Carmella Roehrig thought she was ready to go full-electric and sold her backup gasoline vehicle. But after the 62-year-old North Carolina resident found herself stranded last year in a rural area of South Carolina, she changed her mind. Roehrig’s Tesla Model S got a flat tire, but none of the stores in the area carried tires for a Tesla. She ended up paying a worker at a nearby shop to drive her home.

Roehrig still has her Tesla but bought a pickup truck for long road trips.

Tesla didn’t respond to a request for comment.

“I have these conversations with people who say we’ll all be in EVs in 15 years. I say: ‘I’m not so sure. I’ve tried to do it,’” Roehrig said. “I think you need a gas backup.”

Customers who want to ditch their gas vehicle for environmental reasons are sometimes hesitant, said Mickey Anderson, president of Baxter Auto Group, which owns dealerships in Kansas, Nebraska and Colorado.

“We’re in the Colorado Springs market. If this is your sole mode of transportation, and you’re in a market in extremes of elevation and temperature, the actual range is very limited,” Anderson said. “It makes it extremely impractical.”

Dealers representing around 4,000 stores across the U.S. signed the letter in November addressed to Biden, saying the administration’s proposed auto-emissions regulations designed to promote electric-vehicle sales are unrealistic. The signatories ranged from stores owned by family businesses to publicly held giants such as AutoNation and Lithia Motors.

“Some customers are in the market for electric vehicles, and we are thrilled to sell them. But the majority of customers are simply not ready to make the change,” the letter said.

Some carmakers are pushing back EV-rollout plans. GM said in mid-October that it would delay the opening of an electric pickup plant by a year to late 2025. In response to weaker-than-expected consumer demand, Ford said in late October that it would defer $12 billion of planned spending on electric-vehicle investment.

Since September, dealers on average took more than two months to sell an EV, compared with 40 days for all vehicles, according to car-shopping website Edmunds.

While discounts have helped boost sales of some electric vehicles, they also have led to repercussions for some current owners because it reduces the value of their vehicles, dealers say.

“Most people don’t have the confidence to buy an EV and know what it will be worth in 10-15 years,” said Rice from the Toyota dealership.

It may take some time for the industry to adjust because it is still in an early stage of switching to electric vehicles, Sheehy’s LaRochelle said.

“We’re asking for this market to grow organically,” he said.


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