Luxury in India Post-Demonetisation
| 11 Apr 2017
| NOP Bureau, New delhi

Luxury in India Post-Demonetisation

Debasish Chakraborty

Luxury, a strong word indeed for a country like India, where societies keep moving on the wheels of perception and stereotypes, has evolved in a big way over the last few years. To the natives, luxury once used to be something quite relatable to the phrase ‘once in a blue moon.’ But with the gradual evolution of the economy and public perception, luxury invaded the dreams of many a people, especially those who could afford to experience and relish it. Today, luxury is treated as an equal to setting the benchmark that everyone eventually wants to reach.

In an exclusive interview, Sanjana Mohan, founder and managing director, Stimulus Research Services, and editor-in-chief, World of Business magazine, said, “Teenage years teach us a lot about the evolving trends, and so were my learnings from my parents about luxury and how aspirational it can make people towards itself. Today, the scenario looks at one with good savings or financial backup as someone who can afford luxury and make it the way of life. We see teenagers working as freelancers while they are still academically equipping themselves to live up their future dreams towards luxury.”

As per a report published as a joint endeavour of the Confederation of Indian Industry and Kantar IMRB, India witnessed a good 25% growth in the luxury market between 2015 and 2016. The reported growth was India’s movement from a 14.7-billion-dollar market in 2015 to an18.5-billion-dollar market in 2016.The ASSOCHAM, one of the apex trade associations of India, too revealed that there was an influx of USD35 billion in the online luxury market of India and predictedthat the numbers would hit a double by the end of 2020. The report published by the ASSOCHAM further predicted a compounded annual growth rate of 27% of the online luxury market of India by the end of 2018.

In a recently concluded luxury conference in Mumbai, Amitabh Kant, the chief executive officer of NITI Aayog, too predicted the Indian luxury market to reach USD50 billion by 2020 and USD180 billion by 2025. The prediction is indeed sky-high, especially for a country that has undergone a radical change, just a few months back, in the name of demonetisation, where people were made to give up their liquid cash of INR500 and INR1000 denominations as part of the process initiated to kill black ‘bucks.’

Demonetisation, to some extent, took away the independence of the people towards utilisation of hard cash to realise their dreams towards luxury. While the economy was already reeling under the demonetisation bugaboo, the central government’s announcement of capping cash transactions and limiting a single transaction to INR 3 lac further hammered the residual enthusiasm of the people. The regulation of the declaration of the PAN number on cash transactions above INR 3 lac came as a huge jolt that shook the entire luxury market of India. Luxury clothing and accessory brands started leaving the market after suffering unimaginable losses within months after the announcement of demonetisation, as customers started refraining from experiencing luxury.
However, the jolt was not as deadly as predicted. It was moderately balanced with economic factors evolving for the common good and helped the market to not drastically change the luxury scenario. The prime factor that has contributed largely towards holding the downfall of the luxury market post-demonetisation is the growing Internet penetration. India, presently, ranks third among the nations of high Internet users. The ASSOCHAM foresees the current base of 343 million Internet users reaching600 million by 2020.

This is a tremendous number and is possible with Internet penetration in tier I and II cities in the form of broadband and mobile Internet. It is also seen than three-fourths of the entire population using the Internet belong to the age bracket 15–25. Since the youth of India is hardly affected by the economic ups and downs, it, as the Internet population, has really done well in substituting the fall of the luxury market in India.
According to Sanjana, “India has seen a huge surge in online platforms in the last few years, dealing in luxury products and catering to the younger class to a large extent. This way, they have been able to capitalise on the Internet penetration happening throughout the length and breadth of the country.”

The second important factor that has counterattacked the demonetisation effect well is the steady growth of disposable personal incomes (DPIs). The DPI is the residual amount people have after tax submission and can be spent on things of personal choice. In 2015, it was observed that the DPI in the Indian economy increased by 8.06% over the amount in 2014. It is also predicted to further climb to a generous 40% by 2020. This has largely helped people to fulfil their taste for luxury, even if demonetisation had given its best shot to guide ‘luxury’ into oblivion. Further, this has also allowed the luxury market to cater to a mass beyond the crème de la crème.
Thirdly, the tremendous growth in the middle class in India has contributed significantly to the luxury market in India. It’s predicted that by 2025, the middle-class segment in India will increase drastically from its current standing of 50 million households and will comprise almost half of India’s population.

With an earning of approx. INR 10 lac per annum and considering the positive side of DPIs, the middle class is considered to have a huge potential in re-infusing life into the luxury market in India. It is also predicted that by 2025, more than 40% of India’s GDP will come from the middle class. This will contribute immensely in expanding the luxury market in India. To add to that, urbanisation has gained speed in India, and considering the pace, more than 300 million people are projected to live it in the next 30 years. Further, the increased foreign direct investment in India and government’s upfront efforts in creating smart cities are furthering urbanisation. All of this is ultimately constructing a road that leads to the growth of the luxury market in India.

Seconding the fact, Sanjana from Stimulus Research Services said, “The future of the luxury market in India looks promising. The annual salary package of more than 8 million people living in India is around INR 10 lac, which leaves us to believe that the DPI has increased substantially of late. Also, the middle-class segment in India is increasing tremendously. All these factors can play a crucial role in adding to the growth of the luxury market.”

Whatever be the scenario of late, whether the above-mentioned economic factors contributing to the growth of the luxury market in India or the demonetisation episode retaining its shock, one thing can be easily understood thatno matter how much people earn and how much tax they shell out, after 8 November 2016, the aspirations towards luxury have slightly been moulded. The latest decision on pulling down the cash transaction limit to INR 2 lac has also trimmed the wings of people with high spending power.

Further, with the Goods and Services Tax (GST) lined up to roll out soon, there is a speculation in the market that 28% will be levied on some luxury goods like air conditioners and cars. If rumours transform it into sheer truth and the government is unable to bring down the rate to 20%, then there would surely be a huge plague engulfing the luxury market of India. But since the rate is being mulled over, there’s still a hope that the discussed economic factors will, to some extent, improve the luxury market of India.

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