1. Budget 2016: Thrust on rural economy means opportunity for FMCG

Budget 2016: Thrust on rural economy means opportunity for FMCG

The thrust on infrastructure development by providing better roads and railways will improve the overall supply chain environment for the industry

Published: March 3, 2016 12:21 AM

The Budget talks of a long term vision for economic growth, a vision which dreams of better amenities, infrastructure, skill development and jobs. The focus on broad-based growth with a thrust on rural, agriculture and farmer welfare augurs well for the FMCG companies.

A host of measures has been proposed and budgets have been allocated for increasing the crop yield, improving irrigation facilities, unleashing new agricultural schemes, enhancement of MGNREGA, improved market access by providing e-commerce platform for farmers, better regulation of MSPs, through specific initiatives like online & decentralised procurement. The government is committed towards ensuring that the social security benefits are delivered to the beneficiary by extending the direct benefit transfers leveraging the Aadhaar framework.

Additionally, Fasal Bima Yojna, while acting as a shield to farmers against natural calamities, a higher allocation towards interest subvention will ensure a lower interest outgo. All these measures will give a boost to rural growth, thereby increasing the demand and consumption of consumer goods. The government has allocated interim provisions towards the 7th pay commission and OROP, which will further enhance the consumer demand.

The Budget also intends to drive digital literacy over the next few years which will cover additional 6 crore households. It provides an opportunity to reach larger masses more effectively and economically. Globally, it is seen that economies with higher literacy and education standards witness a well-developed FMCG sector.

The government’s thrust on the infrastructure development by providing better highways, roads & railways will improve the overall supply chain environment for the industry.

The other positive for the industry is the government’s commitment towards easing the environment of doing business by bringing process reforms through IT interventions and rationalizing bureaucracy in various ministries.

The industry was looking forward to a roadmap on implementation of GST. However the roll out of GST in FY17 remains a suspect as FM chose to be silent on the subject matter. Albeit, the introduction of agricultural cess of 0.5% on all services, seems to be a step towards taking the rates closer to the GST proposed rates. Corporate sector was also hoping for a roadmap on reduction of Corporate Income tax rates from 30 to 25%; however it was only limited to small companies and start ups. While a road map has been laid out for phasing out of incentives and exemptions, the corresponding meaningful reduction in corporate tax rates is still awaited.

Overall, the Budget attempts to drive an inclusive growth focusing on rural economy which is a positive for the FMCG companies. However, the tax reforms particularly with respect to GST and rationalization of tax rates have been kept in abeyance.

By Saugata Gupta, MD & CEO, Marico Limited

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