Budget 2023: Lower taxes to fuel demand for consumer goods

The Budget stressed on the vehicle scrappage policy, which will likely boost new car sales.

Budget 2023, budget
FM Nirmala Sitharaman at the post budget press conference in New Delhi on February 1, 2023. (Photo: PIB)

The changes in the personal income tax regime announced in the Budget are expected to boost demand for consumer goods, especially durables, where demand has been muted. These will increase discretionary spends on appliances, according to Kamal Nandi, business head and executive vice-president at Godrej Appliances. “These measures should boost the economy and deliver more disposable income in the hands of people, driving consumption,” he said.

The demand recovery in the premium category has been faster in recent months, compared to the mass- or entry-level segment, which has been weighed down by elevated inflation and weak rural demand. “The rationalisation of the personal income tax rates and slabs is a strong positive and will boost consumer sentiment,” said Anuj Poddar, MD and CEO, Bajaj Electricals.

Ravi Saxena, founder and CEO, Wonderchef, said that with increased disposable income in hand, the middle class will have the power to spend beyond the essentials — such as the basket of food, cooking gas and transport — and bring focus back on discretionary consumption. “This Budget is exactly how we expected it to be in terms of addressing the two prime concerns facing the sector — commodity inflation and continued lack of jobs,” he said.

The reduction in individual tax slabs will benefit the entry-level two-wheeler and passenger vehicle segment. The auto sector will also see a boost thanks to the proposed cut of basic customs duty on goods other than agriculture and textiles from 21% to 13%. However, fully imported luxury cars and EVs will cost more as the government has raised the customs duty from 60% to 70% in the Budget.

The Budget also stressed on the vehicle scrappage policy, which will likely boost new car sales. According to the finance minister, more funds will be allocated towards scrapping of old vehicles by the central government; the central government will also support state governments to scrap old vehicles and ambulances.

Also read: Budget 2023 Highlights: Boost for infrastructure, innovation and employment

Coming back to consumer durables, while the air conditioner, refrigerator and washing machine industries grew at a CAGR of 12.9%, 13.6% and 11.7%, respectively, between financial year 2009-10 and 2019-20, these were among the worst-hit during the two years of Covid, as demand plummeted and supply chains were disrupted. Since the summer of 2022, the industry has seen some good growth numbers at the premium end, while the mass segment continued to bear the brunt of the inflationary trends.

According to Deepak Bansal, vice-president (home appliances & AC), LG India, the premium segment drove growth with an increase in demand for larger capacity units, innovative technology and future-ready products. “The tax measures will create more disposable income and we will see good traction especially among entry- and mid-level products where upgradation will continue. This will also boost penetration of consumer durables,” he said.

Companies in the fast-growing AC industry seem particularly upbeat. “We can say that we were expecting the AC industry to witness a growth of 15-20% in the coming summer, which could now be in the range of 20-25%,” said B Thiagarajan, managing director, Blue Star.

“Affordability has been the biggest challenge in the mass segment due to high inflation. With more disposable income, consumption will improve and the FMCG industry will benefit,” said Avneet Singh Marwah, CEO, SPPL, the exclusive brand licensee of Thomson in India.

Also read: Union Budget 2023 – An inclusive and progressive budget in the ‘Amrit Kaal’

Additionally, the move by the government to halve the basic customs duty on specified parts of open cells of TV panels to 2.5% is expected to make LED televisions more affordable. “Prices for LED TVs are expected to fall by 1-1.5% and the benefits of the same shall be passed on to the customers,” said Arjun Bajaj, CEO, Daiwa TV.

According to Kalpesh Parmar, country general manager, Mars Wrigley India, a higher spending power will also revive rural demand. “We are optimistic about a strong uptick in rural demand on the back of the massive wave of digitisation through an array of infrastructure-led initiatives announced by the government,” said Angshu Mallick, MD & CEO, Adani Wilmar.

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First published on: 02-02-2023 at 01:10 IST