The Union budget on Tuesday promised one month’s wage up to ₹15,000 to all new joinees in formal sectors, a scheme that is expected to benefit 21 million youth. On the tax front, standard deduction for salaried employees was raised from ₹50,000 to ₹75,000.
“The budget is consumption-friendly”, said Rohit Jawa, CEO and managing director of Hindustan Unilever Ltd (HUL), India’s largest packaged consumer goods company.
“Looking at it from a mass consumption standpoint specifically, what I find positive and exciting is the sustained investment in infrastructure and its long-term multiplier effect that will continue. Also, new announcements today i.e. increasing the investment in rural development, investment in agri and allied activities, supporting the 10 million urban poor, schemes for youth employment, especially skilling, are quite positive, especially for businesses like ours that serve consumers in nine out of 10 households in India,” Jawa said after the company’s June quarter earnings announcement.
Multi-year effect expected
The budget proposals will have a “multi-year” effect in driving consumption, Jawa said. “The budget is clearly focused on agriculture, employment, rural development and urban housing infrastructure for the urban poor as well, and it should give an impetus to urban mass and rural consumption,” he said. The budget has set aside ₹1.52 trillion for agriculture and allied sectors, aimed to lift the rural economy. Besides, the PM Awas Yojana Urban 2.0 was allocated ₹10 trillion to address the housing needs of 10 million urban poor and middle-class families.
Investors took cheer from the budget’s consumption turn, with the BSE FMCG index that includes companies such as ITC Ltd, HUL, Godrej Consumer Products and Dabur India closing 2.48% higher.
Finance minister Nirmala Sitharaman outlined four critical areas, namely the poor, the farmer, women and the youth, with a focus on employment, skilling, MSMEs and the middle class. However, the capital gains tax hike seems to have come as a big dampener for the market, said Mohit Malhotra, CEO and MD Dabur India Ltd.
“Increased allocation in the budget towards education, skilling and employment and special employment-linked incentive schemes for employees and employers aptly demonstrated the government mindset to significantly improve employment and employability in the country. These steps will go a long way in driving consumerism,” Malhotra said.
The hike in standard deduction is expected to result in savings of around ₹17,500. “This would mean more disposable income in the hands of the consumers and would lead to sustained demand for branded consumer goods. The Budget’s push on urban and rural growth will help boost rural consumption and also increase discretionary spending,” Malhotra added.
The budget comes amid a decline in private consumption expenditure. While consumers at the top end of the market are spending on everything from pricey cars, holidays and eating out, the same isn’t true for consumers at the mass end, given the high inflation in the post-covid years. Private final consumption expenditure (PFCE), which indicates the consumption demand in the country, grew 4% in 2023-24, even as economy grew 8.2%. As a result, companies selling both discretionary and non-discretionary products have been waiting for a revival in consumer demand.
Adding to disposable income
The budget is expected to boost consumption, said K. Ramakrishnan, managing director of Kantar Worldpanel, which tracks data on household consumption. “While we may not see immediate effects of the schemes proposed for the youth and women on consumption, the TDS exemption for e-commerce players is likely to boost quick commerce and e-commerce plans in the short term, and the increase in standard deduction is also likely to put some disposable income into the consumer’s hands, which might benefit FMCG,” Ramakrishnan said.
Others said the budget will benefit the lower end of the consumption basket. “The Union budget shows a pro-rural and pro-urban poor stance given a coalition government. We remain positive on almost all the consumer Stocks in spite of most stocks at all-time highs,” said Abneesh Roy of Nuvama Securities.
On Tuesday, the government also announced custom duty cuts on gold and silver. Surging gold prices had spooked consumers of the yellow metal over the last several quarters; the trend could ease now. “The reduction in basic customs duty on gold to 6% from 10% is expected to provide a fillip to gold jewellery sales, which have been tepid in the recent past because of high prices. This will drive up volumes for domestic gold jewellery retailers including during the festive and wedding seasons,” said Aditya Jhaver, director, CRISIL Ratings.
Meanwhile, Ravi Kapoor, partner & leader – retail & consumer, PwC India said the budget sets the stage for driving personal consumption by making agriculture incomes more robust, extending credit for the creation of formal employment opportunities, setting the economy on a long-term growth path through upskilling, boosting domestic consumption through direct tax and capital gains tweaks, and promoting tourism.
