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Business News/ Budget / News/  No money in hands of buyers, rural demand to remain low

No money in hands of buyers, rural demand to remain low

Consumer goods companies had hoped for welfare schemes for rural poor and stressed urban households

Large FMCG firms had admitted to stress on sales volumes in rural areas. Premium
Large FMCG firms had admitted to stress on sales volumes in rural areas. 

NEW DELHI:The Union budget for FY23 presented in the second year of the pandemic has done little to put more money in the hands of consumers, either by greater allocation towards programmes such as the rural job guarantee scheme or by way of reducing direct taxes, disappointing companies that said such measures would have helped boost consumer demand that remains sluggish. 

Finance minister Nirmala Sitharaman said the budget seeks to lay the foundation and give a blueprint to steer the economy over the next 25 years. She focused on allocating more funds towards infrastructure projects such as the PM Gati Shakti plan covering roads, railways, airports, ports, mass transport, waterways, and logistics infrastructure, which many said will have a multiplier effect and create jobs.  

Yet, the budget comes even as the country winds through a pandemic that has already squeezed the middle classes and rural households with job losses and unprecedented inflation driving them to cut down on expenditure. 

Consequently, many large consumer goods companies were hoping for schemes that would put more money in the hands of consumers. They expected more direct transfer of money for the rural poor and welfare schemes for stressed urban households. Large fast-moving consumer goods (FMCG) firms had also admitted to stress on sales volumes in rural areas.  

However, the budget quietly cut back on allocation for the Mahatma Gandhi National Rural Employment Guarantee Scheme, a rural job guarantee programme that helped rural households during the last two years of the pandemic. It allocated `73,000 crore to the flagship scheme in 2022-23, significantly below the revised estimate of `98,000 crore outlay directed towards the scheme in the current financial year.  

On Monday, Mint reported that demand for packaged goods in villages has been moderating. Analysts tracking the consumer goods industry said rural demand will remain under pressure, in the medium term. “Near-term rural demand will remain disappointing and urban demand will be better," said Abneesh Roy, executive vice-president, institutional equities, Edelweiss Securities. Factors such as a normal monsoon, dip in inflation in diesel, fertilizer prices, and stimulus from the government will be critical for rural demand recovery, Roy said. In the long term, higher infrastructure spending would indirectly create jobs and improve efficiency, he said. 

Packaged foods company Parle Products pointed to a lack of support to direct taxpayers that can restrict spending. However, the positives are the focus on building infrastructure and on ease of doing business, said Krishnarao Buddha, Senior Category Head at Parle Products. 

“Volume growth in consumer categories may come under pressure for next two quarters due to oil pricing related inflation impacting input and distribution costs for most FMCG products and chips supply shortages impacting the growth for durables and automotive categories," said Amit Adarkar, CEO, Ipsos India. “The budget has prioritized long term growth over short term sops-induced growth, despite upcoming state elections. Though there are no direct measures to boost immediate consumption, medium to long term growth for key consumer categories should be robust," he added.  

Manish Sharma, CEO, Panasonic India, said from the individual’s perspective, no changes in tax structure can also be a relief as it defines stability in current times. “Though more money in the hands of the taxpayers could have helped drive consumption over the short term," he said.  

The Budget may not have met the general expectations of being a short-term “consumption booster", but it has all the right ingredients for becoming an impactful long-term growth-oriented move, said Mohit Burman,  vice chairman, Dabur India Ltd. “While there may not be any big reliefs for the salaried and middle class in India by way of tax cuts, the absence of any big negatives is a big positive in itself," Burman said. The budget has taken the much-needed investment route to drive long-term economic growth for the country, he said.   

Saugata Gupta, MD & CEO, Marico Limited, said by prioritising job creation, infrastructure growth and strengthening digital capabilities, the Union Budget “sets us on the path to creating a modern and a future-ready India."  

Some key measures have been announced including building rural infrastructure, the PM Awas Yojana housing initiative and skill-building programmes which will help boost the rural market, Gupta said.   

“Further, the initiatives provided to the farmer community in India through the schemes for natural and chemical-free farming, as well as the investment made for Kisan drones for crop assessment and digitization of land records will be beneficial to them… These coupled with well-controlled inflation will help in reviving the sentiments in rural India," he said.


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Suneera Tandon
Suneera Tandon is a New Delhi based reporter covering consumer goods for Mint. Suneera reports on fast moving consumer goods makers, retailers as well as other consumer-facing businesses such as restaurants and malls. She is deeply interested in what consumers across urban and rural India buy, wear and eat. Suneera holds a masters degree in English Literature from the University of Delhi.
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Published: 01 Feb 2022, 06:54 PM IST
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