The interim budget laid out several key measures that are likely to assist rural employment and boost farmer income amid a weak demand for packaged goods reported from villages. However, companies said the budget did little to address subdued consumer demand among lower middle income households.
Finance minister Nirmala Sitharaman announced in the interim budget that capital expenditure increased by 11.1% to ₹11.1 trillion. The government also announced plans to step up efforts for value addition in the agricultural sector and boosting farmers’ income, apart from promoting private and public investment in post-harvest activities. Through rooftop solarization, 10 million households will be enabled to obtain up to 300 units free electricity every month. There has also been a year-on-year jump in allocation to the rural jobs programme under the Mahatma Gandhi National Rural Employment Guarantee Scheme to ₹86,000 crore.
Additionally, the government will launch a housing for middle class scheme to promote middle class to buy or build their own houses though a timeline for the same was undefined.
“The continued impetus on government capex outlay is a strong positive for the economy. One challenge for the economy is the subdued consumer demand, especially among the rural and lower middle segments. While this interim budget has not directly addressed that, I remain hopeful that the full budget in July shall do so,” said Anuj Poddar, MD & CEO, Bajaj Electricals Ltd.
The interim budget commits to a “long-term” vision of strong economic growth, said Aasif Malbari, CFO, Godrej Consumer Products Ltd (GCPL). “Continuing the path of fiscal consolidation is a positive sign for overall economic growth, which has the potential to boost consumption patterns in the long run. The focus on enhancing connectivity and infrastructure also bodes well for India Inc inclu-ding FMCG sector,” he said.
To be sure, consumer goods makers have been challenged with shoring up demand among rural and middle income households. This while demand for premium goods has remained firm.
Meanwhile, Anand Ramanathan, partner and consumer products and retail sector leader, Deloitte India, said the government’s focus on sectors like housing, tourism and infra spending will have a multiplier effect on consumption across middle income households.
“Overall, the budget will benefit FMCG and consumer durable companies from a growth in rural and middle income household consumption,” said Ramanathan.
To be sure, the final budget will be presented by the new government in July 2024. The government also did not tinker with direct taxes during the interim budget announcement on Thursday.
The government’s enhanced capital expenditure lays the foundation for long-term economic growth, said Mohit Malhotra, CEO, Dabur India. “While not immediately pandering to populist impulses, the budget allocates significantly to infrastructure development and provides incentives for rural housing, agriculture, and fisheries,” he said. The extension of healthcare coverage under Ayushman Bharat to ASHA and Anganwadi workers, and expansion of the “Lakhpati Didi” scheme’s target to 30 million women are big “positives” for rural consumption, he added.
Consumer goods makers reported “stable” demand in the December quarter. However, due to lower agriculture yields and uncertainty of future crop outputs, rural consumer sentiment remains subdued. Urban growth continued to outpace rural areas across many industries with premium products reporting stronger growth.
Abneesh Roy of Nuvama Securities said that while the budget announcements such as affordable housing scheme for middle-class households as well as private and public investments in post-harvest activity bode well for the packaged consumer goods sector overall, consumer demand in the near-term will hinge on a normal monsoon in 2024.
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Published: 01 Feb 2024, 03:00 PM IST