The inflation not only affected each and every aspect of India and its market but it really hitted hard the organized retail in India. Because of unbridled inflation and high interest rates the purchasing power of an average Indian dropped significantly and thus retailers faced a slowdown in purchases. But there is a light at the end of the tunnel for the retailers and that light is the government’s recent decision to implement the Sixth Pay Commission. a large segment of Indian middle class is a salaried class about 5 million central government employees and not only this each state will have their own six pay commission plan and every government employee will get his share. typically in a middle class 37% are the salaried employees which will suddenly have disposable income in their hands just before the festive season which is a good indicator for the retailers. Besides the enhanced salaries that will cost Rs 17,798cr annually, the Government has committed to payment of arrears as the hikes are effective from 2006 which cause a one-time burden of Rs 18,060 crore. So you can see there is raining money in the middle class of India but we can’t generalize the thing that it will be beneficial for all the organized players in Indian retail market. As we can see that majority of the people that will enjoy the sixth pay commission belong to middle class and if we consider the psychology of a middle class, he will like to spend this money in discount stores and on big ticket items like hardliners for which he might be waiting for long time and this behaviour is also drived by the festival season and there will be sale and promotional offers on lots of item. High end retailing will not get much pie of this as the this crowd is not their target segment. but for the value, discount and off price retailers is a time to relax and do business to the fullest.
But wait this light at the end of the tunnel can also be a train that will run over the retailers, because this hike in salaries due to sixth pay commission will slowly led to further inflation and this will again hit back the business of organized players.
But what i suggest just enjoy the festive season we will face the later things later 
- Prateek Katiyar
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September 6th, 2008 at 9:38 am
More than disposable income of middle class, Retail industry is in trouble because of poor execution of their expansion plan. This happened because of sudden shoot up in property prices all across. Coupled with inflation and stock market crash made it even more worst from investment point of view.Last few years were very active in this industry when lot of players entered into the market. Their business models were purely on the their planned expanded presence. To attend the maximum operational efficiency size matters.
You are right in hoping that increase in income level of middle class will be beneficial. I feel it will only a part of healing of the bigger problem.
September 6th, 2008 at 1:53 pm
Hi Santosh,
I feel increase in real estate prices, inflation, stock market crash etc. are excuses for bad planning and research. It was like every one jumped into it before deciding whether they or consumers are ready for it or not. It should have been in a phased manner, but this sudden growth only lead to increase in real estate price. So, what we are seeing as a cause is actually effect. You can read my next post and a comment by ‘Sen’ on the same.
September 8th, 2008 at 11:13 am
Hey Santosh, the problem already persist and if we see the players in the retail game they are all in a mess, and this real estate prices, inflation and poor executions of there plans are the right reasons you marked for these problems, but i think this sixth commission plan will act like a rain shower to just wash out little mess from these retailers but i don’t this this is a long term thing, as i mentioned in the article this sixth commission plan will lead to more messy situation as it will result in more inflation rate.