<article>For e-commerce players and their investors, 2016 might turn out to be a better year than the past.</article>

For e-commerce players and their investors, 2016 might turn out to be a better year than the past.
The last time the Indian government increased salaries for its employees was in 2008, when <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=Flipkart+" target="_blank">Flipkart</a> was still operating out of a house in Bangalore and sold only books.
It is now valued at $15 billion. And has competitors like <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=india+e-commerce" target="_blank">Snapdeal</a> and <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=india+e-commerce" target="_blank">Amazon India</a>, who are locked in an intense battle for marketshare. For them, and other players such as <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=india+e-commerce" target="_blank">Jabong</a> and <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=india+e-commerce" target="_blank">Shopclues</a>, the upcoming government pay hike would be a great opportunity to raise the number and value of transactions.
<h3>Upcoming Windfall</h3>
The government&#8217;s upcoming union budget document, to be presented by finance minister Arun Jaitley at the end of February, will make a provision for a 23.5 per cent jump in the salaries of federal employees and pensioners. That translates into $15 billion of extra money in the system.
But a far more impact will happen after that, when all of India&#8217;s 29 state governments make a similar announcement in their budgets, matching the hike for their employees. That translates to an additional $35 billion payout, according to government data. And the resulting total of $50 billion in hikes will impact nearly one-third of India&#8217;s working, middle class population who are all employed by various governments.
Such an increase in salaries will have a domino effect on the private sector as well, most of whom are expected to raise pay at an average rate of between 10-20 per cent.
&#8220;There has been a lot of back-end work, and it is reflected in the positive sentiment. But we will see that reflected on the ground in 2016,&#8221; said Sunil Goel, managing director of <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=GlobalHunt" target="_blank">GlobalHunt</a>, an executive search firm.
Such an increase in salaries inevitably leads to higher spending, which was seen in 2008. People, with more disposable income, would spend on cars, and appliances and other services, which would drive the growth of bigger corporations. And it would help e-commerce players, who are turning down the discount tap but still sell at cheaper rates than brick-and-mortar stores.
India&#8217;s e-commerce sector, which is entirely private and funded by venture capital firms, has grown from about $4 billion in 2009 to more than $20 billion in 2015. They would all welcome the new business from consumer flush with money. After a year of easy fundraising, investors are back to asking tough questions about roads to profitability and ending financial profligacy. And investors believe that this windfall of salary hikes would enable such companies to have good sales despite a cut in discount rates.
&#8220;The resulting increase in disposable income will be spent in the short term on purchases from e-commerce companies. I would expect that people will also save more, for bigger purchases such as real estate in the long run,&#8221; said Ashish Taneja, founder of Delhi-based <a style="color: #000080;" href="http://www.dealstreetasia.com/stories/growx-ventures-to-invest-upto-3m-in-startup-funding-betting-on-fintech-and-logistics-says-ashish-taneja-15215/" target="_blank">growx ventures</a>, an angel/seed investor in 18 startups.
<h3>More cash, higher spending</h3>
The last time the salary hike happened in 2008, it put enough purchasing power in the hands of people that they could spend on startups that were just starting off the block. That hike was much higher at 35 per cent, and included pay arrears for two years, which put more cash in the hands of federal employees. &#8220;The arrears resulted in robust demand for consumer discretionary products that resulted in sustained stock performance over 3-5 years,&#8221; said Jai Shankar, chief India economist of <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=Religare" target="_blank">Religare</a>, a financial services platform.
Such employees were empowered to spend on a whole range of products and services, including those provided by startups, although the fiscal stimulus also played a major role in powering growth at at time when the rest of the world was struggling to shake off the financial crisis.
Another factor helping e-commerce firms would be the expected launch of Reliance&#8217;s low-cost 4G service, which might allow lower-level government employees to finally purchase a smartphone with fast internet. And then use that to make a purchase online of anything from a washing machine to a car.
For investors, this would be a bigger gain than investing in publicly listed manufacturing companies in India, which have had flat growth and are burdened with debt. They would be hoping that the e-commerce companies in their portfolio use this opportunity to cut down on losses while continuing a fast pace of growth.
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For e-commerce startups and their investors, 2016 might turn out to be a better year than the past.

India: For e-commerce startups, government's $50b pay hike will be a huge opportunity

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