Budget 2017: Indirect booster for rural-urban consumption3 min read . Updated: 03 Feb 2017, 01:02 PM IST
The overall theme is to give impetus to the lower rungs of the society as the budget focuses on macro economic development in rural areas
Piruz Khambatta, chairman of the Confederation of Indian Industry’s national committee on the food processing Industry and chairman & managing director of Rasna Pvt. Ltd, was expecting a positive ‘tsunami’ in this budget, he told a television news channel on Wednesday morning. Finance minister Arun Jaitley’s Union Budget may not have matched that metaphor, but it held the promise of boosting consumption, especially in rural India.
According to Sunil Duggal, chief executive at the packaged consumer goods company Dabur India Ltd, rural consumption has been slowing for the last two or three years. “The budget seeks to drive consumerism, particularly at the bottom of the pyramid. It may lack any big bang announcements, but it certainly contains measures that are seen as the right steps in the right direction, and are aimed at improving the quality of life in rural India," he said.
That really sums up what the budget set out to do when Jaitley talked about undertaking measures to ensure that “the fruits of growth reach the farmers, the workers, the poor…"
For a start, the FM announced increasing the outlay for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS) to Rs48,000 crore from Rs38,500 crore last year. This is the highest ever allocation for MNREGS.
That is not all. In his speech, Jaitley said that the government will continue to work closely with the farmers and the people in the rural areas to improve their life and environment. “This is a non-negotiable agenda for our government. The total allocation for the rural, agriculture and allied sectors in 2017-18 is Rs1,87,223 crore, which is 24% higher than the previous year."
This is good news for consumer products companies which had seen their sales decline owing to poor pick up in rural consumption. MNREGS, coupled with the government’s skill development initiative, “would not just strengthen the hands of the rural poor, but also help put more disposable income in the pockets of the rural consumer and ensure continued rural demand for branded consumer goods," said Duggal, adding that the company will look to increase its rural footprint and launch products and packs for this market.
Kannan Sitaram, operating partner at private equity firm India Equity Partners, agrees that the budget focuses on income generation for people at the bottom of the pyramid which will seed rural consumption. “There is clarity on what the FM is doing and that clarity is good for the economy. And what’s good for the economy is obviously good for companies selling soaps and shampoos," he said.
That is not all. Even urban consumption is likely to receive a boost thanks to the lowering of the personal income tax rate which will put close to Rs20,000 crore in the pockets of the consumers. “That money is likely to come into consumption whether it is for FMCG (fast moving consumer goods) or durables. The effort will drive both rural and urban consumption. Besides, the budget is also sensibly generating consumption as it offers economic opportunities through jobs and infrastructure creation," said Kannan.
Clearly, the overall theme is to give impetus to the lower rungs of the society as the budget focuses on macro economic development in rural areas and reduces the income tax rate for the lower income groups. This will boost growth in larger parts of the country. “A pragmatic approach has been adopted to maintain a fine balance to uplift the sentiment at the ground level," said Vikas Vasal, partner and national tax leader at Grant Thornton. Several other measures in the budget will provide employment to skilled and semi-skilled workers, further contributing to overall development, he added.
However, Arvind Singhal, chairman and managing director at retail consultancy Techopak Advisors, feels that there are no direct linkages between what the budget promises and an increase in consumption.
The money that will be left in the hands of consumers as a result of reduction in personal income tax will not be a significant amount. Besides, MNREGS is targeted at those living below the poverty line. “When these people have money in hand, they will spend on basic things like food and housing. I don’t see how it will impact the consumer products companies. So the stimulus has no direct link to boosting consumption," he said.
But with capital spending increasing this year by 25%, there will be more income and more jobs. So its benefits should be seen in the slightly longer term as the overall growth in the economy will lead to higher spending. Clearly, the FM has put in place the building blocks for India’s long-term future.