The measures announced by Mukherjee include an increase of Rs 1,000 crore in the allocation for the government's flagship programme, Mahatma Gandhi National Rural Employment Guarantee Scheme, which covers over 4.5 crore households. Moreover, there has been increased outlay for development of rural infrastructure under the Bharat Nirman schemes, enhanced rural lending targets for banks (from Rs 3,25,000 crore to Rs 3,75,000 crore next fiscal), extension of the debt waiver scheme by six months along with an increase in interest subvention on farm loans from 1% to 2% for timely payments.
According to industry experts, these measures will increase the propensity to buy products such as automobile, consumer durables and FMCG. It is expected that there would be an overall increase in rural sales notwithstanding the expected 2-5% hike in prices of automobiles and consumer durable products following the 2% increase in excise duty. Adi Godrej, chairman, Godrej Group, said: The increase in the income tax slabs and the additional expenditure in rural India will create consumer demand, resulting in strong economic growth.
Abdul Majeed, analyst and partner, Price Waterhouse, said that the contribution of the rural sector to the total automobile sales is expected to go up from an average of 35-40% currently to 50-55% in the next few years. "The big outlay increase for rural infrastructure will further help increase our rural sales beyond 17% of total sales as of date," said Mayank Pareek, executive officer (sales & marketing), Maruti Suzuki India.
The rural India contributes a significant 20-22% to the overall sales of the consumer durable industry. If the current focus on agriculture continues, we expect the percentage of rural sales to go up significantly in couple of years because of low penetration levels, R Zutshi, deputy MD, Samsung India Electronics, said.
The fact that government is looking at providing further capital to strengthen the regional rural banks (RRB) will play an important role in providing credit to rural economy, giving a major impetus to consumption especially of the big-ticket items.