This close to India’s glittering festive season, the cash register at Neha Tandon’s clothes store should be working overtime as revellers snap up elegant sarees for Diwali celebrations and lavish wedding parties.
But the traditional spending sprees have not transpired this festival season, the first since a sudden recall of India’s high-value banknotes sent shockwaves through Asia’s third-largest economy.
Demonetisation caused months of crippling cash shortages that hit businesses hard and economists concede it contributed to dragging down India’s growth, which hit a three-year low of 5.7 per cent in the first quarter of the financial year.
Retailers say consumers remain scared of parting with their cash and blame that upheaval, and subsequent economic reforms from prime minister Narendra Modi, for their festive sales woes.
“Since demonetisation, there has been less cash around. But even that aside, the Modi government is so volatile people are afraid to spend,” said Tandon at her boutique in Delhi, where just one woman was browsing the racks of sarees less than a week from Diwali.
The Confederation of All India Traders (Cait), the body representing 60 million retailers, says pre-festival sales are down 40 per cent compared with last year’s $4 billion Diwali bonanza.
Since then, Modi has overhauled India’s tax system and cracked down on corruption, flagship reforms many argued were necessary but slowed the economy.
The timing could not be worse for traders, who rely on consumers spending big on clothes, jewellery and gifts to lavish on friends and family ahead of Diwali, the biggest celebration of the year for India’s one billion Hindus dubbed the ‘festival of lights’.
“I have never seen it this bad. We have been here 40 years and trust me, this is not normal,” Tandon said.
Some flashier shopping malls reported stronger sales over the weekend, but smaller outlets say the damage has been done.
Praveen Khandelwal, the general secretary of the traders’ confederation, said there was no hope of a last-minute rebound with some marketplaces “absolutely deserted”.
“Usually at this time, it's impossible to move in the markets. But this year it’s certainly not like that. This is the worst Diwali in a decade for traders,” he told AFP.
Luxury items have borne the brunt of the austerity this season, with sales of wristwatches, formal wear and jewellery plunging.
But the penny pinching is also being felt in other industries usually booming during the festive season.
In a normal year Bengali Sweet Centre, a traditional confectioner, might prepare up to 5,000 boxes of sweets for corporate clients preparing gifts. This year, those orders have nose-dived to just 60 boxes, said owner Sriyansh Jain.
Fireworks vendors, who sell more during Diwali than any other time, are also facing a dismal year with crackers banned in Delhi to curb the capital’s horrendous air pollution.
The depressing holiday sales cap off a tough year for retailers, who have been buffered in the wake of Modi’s economic reforms and attribute the disruption with the glum consumer climate.
The cancellation of more than 80 per cent of India’s rupee banknotes, a move designed to undercut the black market, wiped out cash reserves and threw businesses into chaos.
Eight months later Modi followed up with the biggest tax overhaul in a generation – replacing more than a dozen state and national levies with four different rates of between 5 per cent and 28 per cent.
Retailers complained they were not ready for the massive shake up, with some sectors striking as others scrambled to work out what to charge under the new tax regime. Economists had long argued such steps were vital if the country of 1.25 billion people is to continue creating jobs for its ever-growing population.
These two policies were singled out last month when the Organisation for Economic Co-operation and Development (OECD) downgraded India’s growth forecast for the year to 6.7 per cent, down 0.6 point from their June outlook.
The Modi government has promised the short-term pain would bear fruit down the line. But such overtures offer little comfort for retailers staring down the barrel of a record-bad year.
“The mood is really down. People are more cautious about spending,” said fashion retailer Sunit Nanda, nervously looking around his quiet shop in Delhi. “But these next few days are critical for our business, so I hope things pick up,” Nanda hoped.