Consumer goods companies--those that sell items ranging from food and clothing to soaps and appliances--expect the government to announce measures to curb price rise and boost demand in the upcoming budget.
Measures like tax relief for the middle class, reduced import duties on key components, and increased government spending on rural development are expected to revive consumption, which has been hit by high inflation, particularly among lower-income households.
"A lot has been discussed on the moderation in urban consumption due to rising inflation, especially in food, so we anticipate this budget to address these challenges through measures which could bring some relief to consumers. We expect continued emphasis on rural upliftment, with investments towards infrastructure development, technology upgradation, strengthening of rural distribution networks and employment generation…These actions will directly and indirectly also enable new job opportunities," said Saugata Gupta, managing director and chief executive officer, Marico Ltd.
Also read | FMCG Q3 preview: Rural consumption holds up, but urban slump may weigh on consumer goods companies
Finance minister Nirmala Sitharaman will present the Union budget on 1 February.
Appliance makers on the other hand are seeking concessions on import duties for key components as well as steps to boost domestic manufacturing for electronics such as air conditioners.
For instance, current basic customs duty (BCD) on open cell under the Import of Goods at Concessional Rate of Duty (IGCR) scheme is 5%. Open cell is a thin-film transistor crystal display that is used in the manufacturing of LED and LCD TVs.
“There is no manufacturer of open cell available currently in India and IGCR benefit was available till 31st March 2024. Since there are no manufacturers for these in India, the basic customs duty is recommended to be reduced from 5% to 0%, as well as the IGCR benefit to be extended to support the manufacture of the end product,” said Manish Sharma, chairman, Panasonic Life Solutions India and South Asia.
He added that in order to discourage imports and encourage domestic manufacturing of air conditioners, BCD should be increased to 30% from the current 20%.
Most companies said tax relief measures for the middle-class and salaried classes could help lift demand, especially in urban India.
"Simplification and rationalization of the tax regime will also ease compliance, reduce operational costs, and strengthen supply chains, benefiting the industry and consumers alike,” said Marico's Gupta.
“Oil prices are on the boil and the government can do something to rein in food inflation. Palm oil prices have shot up since there is little domestic supply, and India relies largely on imports. We also expect more spending on the agriculture sector along with greater focus on job creation,” said Mayank Shah, senior category head, Parle Products.
In September, India raised the basic import tax on crude and refined edible oils. Basic customs duty on crude soybean oil, crude palm oil, and crude sunflower oil was hiked to 20% from 0%, resulting in an effective duty rate of 27.5% on crude oils. Similarly, the basic customs duty on refined palm oil, refined sunflower oil, and refined soybean oil has been raised to 32.5% from 12.5%, with an effective duty rate of 35.75% on refined oils.
This has prompted companies to pass on price hikes to consumers.
Urban consumption has been under pressure over the past few quarters on account of high inflation; this is especially true in the lower end of the consuming class that is curbing spending.
The October-December quarter saw a noticeable decline in sales volume growth of FMCG companies in urban areas, with the mass-market segment dropping by over 10% in key metropolitan cities, said Anand Ramanathan, partner, and consumer products and retail sector leader, Deloitte India.
"As a result, the government should relax the basic income tax exemption limit under the old regime from ₹2.5 lakh to ₹3.5 lakh and raise the standard deduction under the new tax regime from ₹50,000 to ₹75,000. This is expected to lead to a 5–7% increase in disposable income for middle-income households and could lead to a 6% rise in consumer spending on FMCG and other essential goods. This is expected to contribute to a 0.7% growth in GDP directly,” he said.
Ramanathan said the government could expand the scope of the production-linked incentive (PLI) scheme to include high-demand sub-sectors within the consumer goods industry, such as home appliances, personal care products and small consumer electronics.
“The expanded policy should include simplified application processes, measurable performance-linked benchmarks and targeted benefits for MSMEs to enhance participation across all tiers of the manufacturing ecosystem. This expansion should also focus on facilitating backward integration and encouraging investments in export-oriented manufacturing,” he added.
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