The proposed pay hike for government employees and the arrears they will receive from January 2006 is likely to boost demand for cars and bikes, durables and even homes, the demand for which has been hit by high interest rates.

Some four million government employees could get an effective 28 per cent increase in salaries from January 2006. Therefore, it will put a sizeable disposable income in the hands of the salary earners apart from increasing the monthly take-home pay.       

"People will suddenly get a lot of cash in hand, which is likely to boost demand for white goods. Since this will benefit a large number of people, the impact will be significant," said D H Pai Panandiker, President, RPG Foundation.            

This anticipated demand has become a beacon of hope for the consumer durables industry, which has witnessed sluggish sales growth in the first three months of this year. The country's consumer durables market is estimated to be worth Rs 25,000 crore (Rs 250 billion) and growing at 12 per cent.        

Videocon Industries [Get Quote] is planning a survey to gauge the impact of the Pay Commission's recommendation so as to identify the potential rise in demand.           

"I am sure it will add to our consumer base and to be able to judge the opportunity we will have to conduct a survey," said Sunil Mehta, Director, sales and marketing, Videocon [Get Quote], which sells the entire range of durables.  

To add to the optimism, the penetration of consumer durables remains low in India, which indicates a large consumer base of first-time buyers.          

"If the commission's recommendations are implemented, there will be an added impetus to durable sales. It will enable a major chunk of consumers from Tier II and Tier III cities to go in for their first purchases. The mid-market segment of the durables business is likely to benefit most," Mehta said.            

LG Electronics India, the Indian arm of the South Korean behemoth, shares the optimism.

"Typically, the disposable income goes into discretionary purchases and this is a positive sign for us since the durables category tends to attract this expenditure. As the salary structures are pyramidal, the durables sales will also be in corresponding durables brackets. We see significant sales coming across price points," said V Ramachandran, Vice-President, marketing, LG Electronics.   

Godrej [Get Quote] & Boyce's appliance division, too, is looking forward to a possible rise in demand, but appears a little unsure about how much of it will materialise.

"The growth rates in the beginning of the year may no longer remain the case. In order to attract the beneficiaries of the Pay Commission recommendations, we will have to consistently innovate and provide better technology to our consumers. But whether it will actually translate into larger volumes, we'll have to wait and watch," says George Menezes, the division's Chief Operating Officer.           

"This will definitely boost demand for durables," said Venugopal Dhoot, Chairman, Videocon Group. Whenever people have a windfall, they tend to save 50 per cent and spend the rest on things that they have been planning to buy, said experts.            

Car and bike makers, who have been hit by sluggish sales, sense an opportunity. "There's an opportunity for car manufacturers to leverage and expand the market. The future earnings of government employees would go up; so they can afford a higher monthly installment," said Jagdish Khattar, former CEO, Maruti Udyog [Get Quote].

Sixth Pay Commission: Coverage