BackWhat Union budget 2014 means for consumers
Arun Jaitley puts more money in the hands of consumers who over the last two years have been cutting back on their spends
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Mumbai: Budget 2014 may not bring inflation down in the short term, but its emphasis on entrepreneurship and focus on infrastructure and manufacturing will create jobs, and its minor sops to individual taxpayers, put more money in the hands of the salaried—and the result could well be a surge in consumption.
“This can lead to higher savings as well as spending and therefore can give a boost to the economy," Govind Shrikhande, managing director, Shoppers Stop Ltd, said, referring to the tax sops.
Indeed, it could “increase consumption and demand," said Avani Davda, chief executive officer, Tata Starbucks Ltd.
The impact of a potentially poor monsoon on consumption, especially in rural India, is yet to be factored into calculations (primarily because there is still a chance that the monsoon could revive), although some analysts say that agriculture’s contribution of only 13.9% to GDP in 2013-14, should mean that this will not be as significant as it would have been once.
Meanwhile, the budget made several consumer products less expensive. For instance, the bulky televisions with cathode ray tubes (CRT), still popular in smaller markets, will now have their colour picture tubes exempt from basic customs duty. LED (light-emitting diode) and LCD (liquid crystal display) TVs, especially those with screen size below 19 inches will also cost less, as will footwear priced between 500 and 1,000 a pair, soaps and matchboxes.
Micro life insurance policies will also cost less.
The middle class and lower middle class, who make up close to 70% of the market, buy shoes below 1,000 a pair; nearly half of this segment buys shoes between 500-1,000 a pair, said Rajeev Gopalakrishnan, managing director, Bata India Ltd.
The budget also reduced excise duty on specified food processing and packaging machinery from 10% to 6%; encouraged exports of readymade garments; and gave a boost to the manufacturing of LCD and LED TV panels by exempting basic customs duty on specified inputs used in their manufacturing—all aimed at reviving some manufacturing businesses.
“(Jaitley) has looked at both manufacturing sectors’ requirement and the consumer," said Chitranjan Dhar, chief operating officer of the foods division at ITC Ltd, explaining that machinery accounts for a significant portion of the capital cost for food manufacturing companies.
Jaitley’s magnanimity didn’t extend to smokers, though.
Cigarettes will see an increase in excise duty of 11-72%. There will be similar increases for cigars, cheroots, cigarillos, pan masala, unmanufactured tobacco, gutkha and chewing tobacco. “These are healthy measures and I hope everyone will welcome them from the point of view of human and fiscal health," Jaitley said.
However, executives at consumer product companies and experts warn that a real revival in consumption could take more. “The overall relief in the personal tax won’t have a material impact on buying," said Harsh Mariwala, chairman, Marico Ltd. A lot of how the economy shapes up in the coming year will depend on what is happening at the global level, the monsoon and execution of the projects announced, he said.
“Not much will change for the consumers in the short term," said Sumita Kale, chief economist, Indicus Analytics Pvt. Ltd, a Pune-based research firm, “...although the thrust to the railways, ports, rivers, roads and power will help take the standard of living a notch higher."
“We won’t see the inflation come down this year as the spending is still fairly large," said Dhananjay Sinha, head of research and strategist, Emkay Global Financial Services Ltd, noting that the government has not made an effort to reduce the subsidies and is instead being optimistic with respect to tax collection.
Still, the measures “could spur growth, providing a fillip" to the consumer products industry, said Ullas Kamath, joint managing director, Jyothy Laboratories Ltd.
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