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Business News/ Opinion / Views/  No magic pill to revive demand overnight
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No magic pill to revive demand overnight

The budget took a longer-term view to restart the consumption cycle through structural reforms. Big investments announced in various infrastructure projects such as roads, public transportation and ports are expected to not only boost demand for steel and cement but also for local labour

A customer counts Indian rupee banknotes (Bloomberg)Premium
A customer counts Indian rupee banknotes (Bloomberg)

On Tuesday, Tata Consumer Products Ltd, which sells Tata Sampann brand of spices and pulses, and beverages under Tata Tea, Tetley, Eight O’Clock and Tata Coffee, saw its December-quarter revenue increase by 23.1% year-on-year (y-o-y). Its India food business registered a 19% value growth and 12% volume growth, while packaged beverages recorded a 43% value growth and 10% volume growth.

Tata Consumer’s earnings align with strong numbers posted by other fast-moving consumer goods companies such as Hindustan Unilever Ltd, Dabur, Marico and Emami, which saw a sustained growth in rural markets on the back of government benefits in cash and kind. Executives at these firms admitted improvement in urban markets, too, as demand for winter creams and personal care products increased.

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Marico said it was seeing a faster-than-expected recovery in consumer sentiment with rural sales outpacing urban demand. Marico’s domestic volumes grew 15% y-o-y during the quarter, while Dabur India reported its highest-ever quarterly revenue and profits with 18.1% volume growth.

Sector specialists said that with such healthy growth rates marking firms selling groceries, staples, health, hygiene and personal care products, the government probably didn’t deem it fit to offer any magic pill in the budget to boost consumption overnight. No direct handouts were announced to push demand.

Instead, the budget took a longer-term view to restart the consumption cycle through structural reforms. Big investments announced in various infrastructure projects such as roads, public transportation and ports are expected to not only boost demand for steel and cement but also for local labour. So, employment generation will not be limited to the metros but will be spread across the country.

A post-budget note by Deloitte said that among the demand-generation measures, it counts providing minimum wages to all categories of workers where they will be covered by the Employees’ State Insurance Corporation. It also includes extending social security to gig economy/platform workers among such measures. Allowing women to work in all categories with adequate protection will further generate employment and demand, it said, adding that the government has further boosted labour-intensive industries such as textiles and fisheries.

During the peak of the pandemic in 2020, the government had put more money in the hands of the rural consumer via increased allocation towards the rural jobs programme, MGNREGA. While it fuelled rural demand for consumer goods, no such dole has come for the urban poor comprising millions in the informal sector who lost their livelihoods.

Yet, analysts said budget 2021 will further lift rural economy with the increased provision, from 30,000 crore to 40,000 crore, for a rural infrastructure development fund.

Integrating 1,000 mandis with the electronic national market and increasing farm credit was also done with an eye on rural impetus. Back in the cities, improved sales of consumer durables could also kick off their capex cycle. Capacity expansion at their end could create more jobs, the analysts said.

Though such measures may not be the booster dose for instant recovery, they will help see demand firm up in about 12 months, said Arvind Singhal, chairman, Technopak Advisors.

Amit Adarkar, CEO at Ipsos India, agreed that budget initiatives on increasing FDI limit in insurance sector, its divestment and privatization focus, increased spending on healthcare and infrastructure are bound to create a business environment stimulating investments and growth in the medium to long term.

Yet, Adarkar flagged a couple of immediate concerns: first, there are no major announcements that could facilitate immediate job creation. During the past 10 months, consumer outlook around employment has remained subdued. “Unless this outlook improves significantly, sustained renewal of consumer demand may be under pressure," he said.

Second, retail inflation has been a reality in 2020 and continues to be so in 2021. In the absence of any significant relief on the personal taxation front, 2021 may not put additional money in people’s pockets to spend. To make things worse, the proposed cess on fuel and gold to fund agricultural infrastructure may increase inflationary pressure.

“It will also be interesting to see the medium-term impact of the government’s divestment/privatization plans on job creation. On the one hand, these initiatives could boost private sector investments and create new jobs. On the other hand, a renewed focus on efficiency may see job losses," Adarkar said.

Shuchi Bansal is Mint’s media, marketing and advertising editor. Ordinary Post will look at pressing issues related to all three. Or just fun stuff.

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Published: 04 Feb 2021, 12:11 AM IST
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