ET Explains: Why this Diwali is the most crucial in 10 years

Economic growth during April-June fell to a 25-quarter low, and consumption — which makes up for nearly 60% of GDP — has slumped. Across most sectors, consumption has been hit harder than it was in the aftermath of the global financial crisis of 2008-09. Economic revival will need consumer spending to grow in the festive season, which is just weeks away. This season traditionally accounts for 35-40% of annual sales of consumer durables, and also sees an uptick in spends on other items. Indeed, this is the most crucial Diwali for the Indian economy in 10 years. ET explains.

Why is Diwali traditionally so important and what companies are hoping for

• Consumers tend to step up spending during Diwali, upgrade products
• Consumption boom leads to increase in industrial activity and investments, which creates more jobs
• Despite the possibility of a festive boost, companies are still sceptical
• Sales growth of more than 5-6% (year-on year) will provide some relief to consumer goods companies
• 8-9%-plus sales growth will signal an economic turnaround
• Lower EMIs on car and housing loans and festive bonus payouts may lift sentiment

Conclusion
Whether government stimulus packages announced so far will have an impact on festive consumption is a big question. An even bigger question is whether consumers, who are coping with flat-lining incomes and a poor job market, will respond to the incentives offered by companies. If this Diwali fails to sparkle in terms of consumption demand growth, outlook for the next few quarters will get much gloomier.