Interim Budget brings cheer to FMCG and retail companies

Measures announced in the Interim Budget 2019 which improve the purchasing power of farmers and middle-class Indians have cheered the consumer goods and retail industry, which was badly affected by economic reforms such as demonetisation, and the goods and services tax.

Walmart India president and CEO Krish Iyer believes that the interim budget is giving huge resources in the hands of people which will drive rural income and consumption. “Growing consumption is critical to support and boost local manufacturing and job creation in the country. Overall, this budget maintains focus on fiscal consolidation and is a win-win budget for all as it will help bridge the divide between India and Bharat,” Iyer said. Walmart is upbeat about the consumption story in India: Last year it bought homegrown e-commerce firm Flipkart for $16 billion.

“Three key changes—higher personal disposable income due to higher tax rebate for up to ₹5 lakh, higher rural disposable income because of farmers package, interest subventions, etc., and real estate and housing sector proposals like no notional tax on second home, capital gains tax exemption for two homes and no notional tax for unsold real estate inventories up to two years can be potential game changers for entire economy and consumer sector,” Paresh Parekh, partner and leader, consumer and retail tax at consulting firm, said.

Overall, this is a “consumption first” budget that will provide a much-needed thrust to growth in the fast moving consumer goods sector (FMCG), said Vivek Gambhir, managing director and CEO of FMCG major Godrej Consumer Products Ltd.

“It re-emphasises the aam aadmi [common people] at the heart of the government’s pro-growth, pro-reform agenda; maintaining the fiscal deficit, stimulating demand and building a sustainable growth platform. It is positive for FMCG; proactive efforts to drive demand and increase consumption, in rural and urban, should help improve growth,” Gambhir said.

Nikhil Prasad Ojha, partner, Bain & Company believes that "Increase in allowable rebate will boost purchasing power in urban and semi-urban areas. Additionally, minimum assured farmer income will impact rural demand for FMCGs and small durables," Ojha added.

Sunil Duggal, CEO, Dabur India Ltd, too expressed confidence that this Budget would boost overall consumer confidence and play a catalyst for demand generation for branded consumer staples and consumer products. “The biggest beneficiary this year is middle-class India. The government’s decision to exempt tax on an income of up to ₹5 lakh for individuals taxpayers and an increase in standard deduction to ₹50,000, the hike in TDS (tax deducted at source) threshold for home rent and higher Capital Gains tax exemptions under Section 54 are big-ticket reliefs for the aam aadmi.”

However, Duggal does not see much clarity on the government’s vision and strategy for improving infrastructure and job creation. Further, “the upward revision in fiscal deficit target to 3.4% of GDP for 2018-19 and 2019-20 remains an area of concern”, Duggal added.

The government also announced today that by March, 2019, all willing families will get electricity connection. “Rural electrification which aims to touch every household by March 2019 coupled with infrastructural push via Gram Sadak Yojana and the rural support schemes will serve as a catalyst in improving the demand for consumer electronics and appliances,” said Kamal Nandi, president, Consumer Electronics and Appliances Manufacturers Association. Nandi is also the business head and executive vice president at Godrej Appliances.

The following are some of the key reforms that will boost the purchasing power of middle-class and rural Indians:

• ₹60,000 crores allocation for Mahatma Gandhi National Rural Employment Gurantee Act.
• Under Pradhan Mantri Kisan Samman Nidhi, farmers with cultivable land up to two hectares will be provided with direct income support of ₹6,000 per year. The amount will be transferred directly into the bank accounts of beneficiary farmers, in three equal instalments of ₹2,000 each. The programme would be made effective from December 1, 2018, and the first instalment for the period up to March 31, 2019 would be paid during this year itself.
• Minimum support price (MSP) of all 22 crops has been raise by 50%.
• The personal income tax slab limit has been raised from ₹2.5 lakh to ₹5 lakh.
• For salaried persons, standard deduction has been raised from the current ₹40,000 to ₹50,000. This will provide additional tax benefit of ₹4,700 crore to more than 3 crore salary earners and pensioners.
• The ceiling of payment of gratuity has been enhanced from ₹10 lakh to ₹20 lakh.