Save more, spend more

Written by fe Bureau | Updated: Jul 11 2014, 14:52pm hrs
The Narendra Modi governments maiden Budget seeks to spur consumer demand in the economy by increasing disposable income in the hands of people, and providing a fillip to the real estate sector, which not only boosts demand for housing, but other consumer durables as well.

In terms of direct proposals, finance minister Arun Jaitley did not announce much, barring tax cuts on a few products such as small television sets, shoes and soaps, which will make these goods cheaper.

Budget 2014

The government is increasing the income tax exemption limit for individuals by R50,000 for people below the age of 60 years to R2.5 lakh and R3 lakh for senior citizens. This will directly lead to an increase of R15,000-35,000 in the disposable income, audit and consulting firm Deloitte Haskins and Sells estimates.

A slowdown in the economy, coupled with high inflation and rising interest rates, had dented consumer demand in India over the past couple of years, directly impacting manufacturing growth.

The increased tax exemptions will leave consumers with extra disposable income to invest in white goods, as per Soon Kwon, managing director of LG Electronics in India.

To boost demand for housing and, in turn, consumer durables that people keep in their houses, Jaitley announced a slew of measures in the Budget. The government will be developing 100 smart cities and capitalising the National Housing Bank to promote low-cost housing in urban and rural areas. The deduction limit on account of interest on housing loan, for tax computation purposes, has also been revised upwards to R2 lakh from R1.5 lakh earlier.

Its a path-breaking Budget with significant focus on real estate and infrastructure, says Shishir Baijal, chairman of property consulting firm Knight Frank India. The various incentives that have been provided will enhance the growth prospects of the real estate sector even further.

With the previous government having announced excise duty cuts of 4-6% for capital goods and automobiles in February, Jaitley didnt have much scope to further reduce indirect taxes. The new finance minister had earlier announced that these excise duty cuts would be extended till December 31.

Still, taxes on certain products and their raw materials such as smaller-sized colour picture tubes, LCD and LED televisions, soaps and shoes were slashed. On the other hand, taxes on tobacco products and aerated water containing sugar (like fizzy drinks) have been hiked and made more expensive.

Nadia Chauhan, joint managing director of Parle Agro, said the excise duty cut on machinery used in the manufacturing of packaged products will help companies save costs and manage their capital expenditure better.