Budget misses out on short-term consumption boost
Premium- Several large consumer goods companies were hoping for schemes that would put more money in the hands of consumers
NEW DELHI : The Union Budget for fiscal 2022-23 presented in the second year of the pandemic has done little to put more money in the hands of consumers—either by way of increased allocation towards rural schemes such as MNREGA or by way of reducing direct taxes—in what companies said was required to boost consumer demand that remains sluggish.
In her speech, the 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 GatiShakti 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 in the aftermath of the pandemic that has already squeezed the middle classes and rural households with job cuts and unprecedented inflation driving them to scrimp on expenditure.
Consequently, several 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 as well as hoped for similar welfare schemes for the stressed urban households. Large FMCG firms had also admitted to stress on sales volumes in rural areas.
However, Budget quietly cut back on the allocation for rural job guarantee scheme Mahatma Gandhi National Rural Employment Guarantee Program or MNREGA which helped rural households during the last two years of the pandemic. It allocated Rs73,000 crore to the flagship scheme in 2022-23 down significantly from the revised estimate of ₹98,000 crore outlay directed towards the scheme in the current financial year 2021-22.
On Monday, Mint reported that demand for packaged goods in India’s villages has been moderating. Analysts tracking the consumer goods industry said that in the medium-term rural demand will remain under pressure. “Near-term rural demand will remain disappointing and urban demand will be better than rural demand," 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 government will be critical for rural demand recovery, Roy said.
However, in the longer-term higher infrastructure spends would indirectly create jobs and improve efficiency, he added.
Packaged foods company Parle Products pointed to a lack of support to direct tax payers that can restrict spendings. 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 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 tax-payers could have helped drive consumption over 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 a well-controlled inflation will help in reviving the sentiments in rural India," he said.
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