Consumer goods manufacturers, expecting to see a revival of demand from the nearly Rs 16,500 crore Pay Commission arrears for government employees, are likely to be disappointed.
More than 8.3 million Central government employees and pensioners will have to wait till at least August 2009 to receive the second instalment of Sixth Pay Commission arrears.
This became clear from the Interim Budget presented last week, which has not sought Parliamentary approval in its expenditure estimates for the first four months of the next fiscal starting April 2009, said a senior finance ministry official.
"The new government will have to seek Parliament approval when they submit the budget," said the same official.
The Rs 32,000-crore domestic consumer durables industry was betting big on the Pay Commission's recommendations to act as an added impetus to sales. Industry observers believe the arrears would have enabled a major chunk of consumers from smaller towns and cities to go in for their first purchases, boosting the mid-market segment of the business.
"It will be a missed opportunity," said V Ramachandran, director, sales and marketing, LG Electronics India. "Typically, disposable income goes into discretionary purchases and since the durables category tends to attract this expenditure, it would have supported growth."
Pay Commission largesse of around Rs 11,000 crore for an estimated 4.5 million government employees was widely regarded as the key reason for a 30-35 per cent boost in festive season consumer electronic sales last year, from a 7-10 per cent average growth for the year. In fact, it was consumer durables that drove industrial growth of 4.8 per cent in September.
Companies have been clamouring for a fiscal stimulus package from the government, as the domestic demand has also been falling sharply in the past few months.
India's factory index reported a dip in both consumer durables (like refrigerator, television sets) and consumer non-durables (like toothpaste, soaps) in December 2008, the latest month for which data are available.
The government is estimating a total spend of Rs 47,500 crore for implementing the Sixth Pay Commission in the current and next financial year. Around Rs 27,000 crore is towards payment of arrears, as the implementation is from 2006.