Union Budget 2021: Augurs well for pvt consumption, retail

By Arvind Singhal

Indian Union Budget 2021-22: After a long period of setbacks, it seems the tide has started to turn. The Covid-19 pandemic seems to be well under control and vaccination may bring it under total control by June 2021 or so. The Q3FY21 results (announced so far) for most companies have reconfirmed that across sectors business recovery has been strong; even if there is less than 100% recovery in revenues (Q3FY21 vs Q3FY20) in some cases, profitability has been higher for many.

The Budget has delivered many positive surprises that augur well for India not only for FY22 but also beyond that, and thereby augur well for private consumption (nearly 58% of GDP).

With the economy under stress even before Covid-19, the government needed to demonstrate a bold resolve in tacking the crisis head-on. By not getting carried away by focusing too much on fiscal deficit, or on mere cosmetic changes (e.g. tinkering with standard deduction in personal income tax), or much worse trying to play to the gallery by increasing taxation on the very rich and the rich, the government has displayed maturity in its understanding of the state of the economy and sustainable ways to give the recovery a boost. Substantial increase in budgetary allocation for a range of physical and social infrastructure should give a fillip to investment in most critical areas of the economy, especially manufacturing, and create more jobs. This circle of more investment activity and growth in job-creation/personal incomes should translate into increase in consumer spending. With Covid-19 likely to be largely controlled in the next two quarters, even travel and hospitality sectors should return to normalcy.

There are some areas, beyond the Budget, where the government can play a positive role. With the surprising buoyancy in GST collections of the last four months, it has some headroom to provide more encouragement to private consumption in select sectors. GST rates for all categories of consumer durables and appliances uniformly kept at 18%. Likewise, while the auto sector has shown good growth, the GST Council could consider bringing down the rate to 18% for a limited period (e.g. until September 30) or remove the cess levied over and above the 28% GST rate. With the PLI scheme in place, a stronger rise in demand for automobiles, durables, consumer electronics and consumer appliances can provide a momentum to investment (including FDI) in the manufacturing sector (primary and ancillary).

In retail, the government should refrain from creating more hurdles for “foreign” businesses. India needs an efficient, modern retail sector that must be regulated only from the perspective of consumers and anticompetitive activity. The origin of ownership has been a bogey created by some domestic vested interests, and hence hopefully the government will show the same maturity as it has in the Budget by allowing FDI in retail without the impractical riders. FY 2022 (and beyond) augurs well for all sectors of private consumption.

The author is CMD, Technopak Advisors