By Eric Bellman 

NEW DELHI -- India's sputtering economy faces a critical test this week when corporate executives and economists see whether its annual festival of lights blockbuster shopping spree reignites spending.

The shopping season, leading up to the Hindu festival of Diwali, kicked off this weekend with a tsunami of ads and offers from battling retail giants Amazon.com Inc. and Walmart Inc.'s Flipkart among others.

The weeks around the celebration -- when gifts are frequently exchanged, and it is considered auspicious to buy -- typically account for up to a third of retailers' annual sales. So far this year, flagging Indian consumer spending has been a major drag on the overall economy.

Sales this week will be an important indicator of the depth of India's slowdown, as well as whether the Western brands that have bet billions on the emerging market will ever get a return on their investments.

Last year, Bappi Raju, 57, used the sales to pick up a refrigerator and an air purifier, but this year his family is holding back on big acquisitions. His Diwali gifts to family, friends and work colleagues have been downgraded to nuts from silver items last year.

"We will spend, but not splurge," he said. "We want to keep some money handy in case there is some sort of a financial crisis-like situation."

Forrester predicts the growth rate from online sales this year will be more than 30%, but that would be a sharp decline from the more than 90% growth last year and the slowest expansion in at least five years.

"The first half was slow in terms of sales so this is the window they have" to make up for lost ground, said Satish Meena, a New Delhi-based analyst with Forrester. "It's crucial for companies."

The ads in websites, billboards and front pages of newspapers shouted about the thousands of discounts and launches Sunday. Amazon's promotions, which included handing out coupons at a New Delhi railway station, focused on the deals. Flipkart's ads features the biggest stars of Bollywood and cricket.

"This is really the harvest time for the whole country," in terms of retail sales, said Rajneesh Kumar, chief corporate affairs officer at Flipkart India. "It becomes the benchmark for the coming year."

India's economy has slowed to a six-year low and has given up its spot as the world's fastest-growing large economy this year as a lack of credit and confidence has dampened spending by the government, companies and, especially, consumers.

The nation's massive consumer class has been the last domino to fall. Shoppers have cut back on purchases of everything from cars and motorcycles to toothpaste and cookies in recent months. They say they are worried about the economy, jobs and trade tensions.

In response, the government unveiled a series of steps in recent weeks to try to quickly spur borrowing and investment and resuscitate spending. It has slashed interest rates, merged state-owned banks, reduced restrictions on foreign investments and slashed corporate tax rates.

But it is not clear the moves will do much to make India's middle class less restrained this season, economists warn.

"I'm not buying the view that this is just a cyclical downturn," said Vivek Dehejia, an expert on the Indian economy at Carleton University in Ottawa. "This reflects the whole unfinished economic reform agenda."

Global brands have invested billions to be ready to reap the rewards as India's potentially massive middle class starts spending more. Many missed the boat in China and don't want to make the same mistake in the other billion-person economy. Amazon has pledged to invest at least $5 billion in India building a national network of warehouses. Walmart made its biggest international acquisition ever when it took over Flipkart last year for around $16 billion.

Big names like Starbucks, McDonald's and IKEA as well as tech leaders like Uber, Google and Netflix have all been ramping up commitment to India.

The spending during the competing five-day sales -- which started Sunday and are equivalent to an extended Cyber Monday which launches the holiday purchasing in the U.S. -- will indicate whether people have been saving to splurge.

To generate interest, Amazon has added 150,000 more sellers and will have a record amount of deals and financing options. To back them up, last month it opened a nine-acre campus in Hyderabad, its largest office in the world.

Flipkart launched a local language version of its app and hired 50,000 more people to help with the surge in seasonal orders. It may even benefit from consumer gloom, said its corporate affairs officer, Mr. Kumar.

"When there are noises around consumer demand then value players like us, we get more traction," he said. "In these times, people want more value for money."

The best-selling product during the sales, by far, is cellphones. So companies time new product launches as well as big discounts to coincide with the event. Samsung said that while its smartphone sales have expanded more than 10% in India this year, the lower-end feature phone sales have flattened.

For Amazon's online sale it launched competitively priced new smartphones over the weekend with discounts. To help more buyers upgrade, this week it introduced fast financing that will give phone loans to Samsung smartphone buyers even if they have no credit history.

"Is there a slowdown? I don't know," said Mohandeep Singh a senior vice president of B2C sales at Samsung in India. "Will this increase the demand for smartphones? I believe so."

--Vibhuti Agarwal contributed to this article.

Write to Eric Bellman at eric.bellman@wsj.com

 

(END) Dow Jones Newswires

September 29, 2019 14:16 ET (18:16 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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