In the run-up to the Union Budget, the FMCG industry is anticipating announcements and incentives that would boost the rural economy and drive consumption in these areas. India’s FMCG and consumer industry’s growth, for several quarters, remained elusive on rising input costs impacting margins, and inflation that has resulted in low consumer spending from the rural and middle class consumers. Even as the last week of June showed sales volume growth for FMCG firms, there are concerns if this recovery is sustainable or just a blip. With Finance Minister Nirmala Sitharaman all set to table the Union Budget 2024 on July 23, FMCG industry voiced its demands and are hopeful that the government will provide income tax relief to the salaried class in order to boost consumption, address the current inverted tax structure within the GST framework, allocate grants to the FMCG industry, among other reform policies that would boost the growth of the sector.
Saugata Gupta, MD & CEO, Marico Limited, said, “Ahead of this year’s Union Budget, we anticipate policies aimed at fostering inclusive and sustainable development. Key expectations include a continued emphasis on rural development through investments in infrastructure and employment, bolstering agricultural activities to enhance rural income. Tax relief for middle-class and salaried classes will not only enhance purchasing power but will also serve as a catalyst in increasing consumption patterns. The government’s support during the critical monsoon period is crucial for stabilizing rural economies and ensuring farmers have access to essential resources.”
Per data by NielsenIQ, rural consumption declined for at least six quarters since 2021, with only a slight positive turn in the first quarter of 2023. Namit Puri, Managing Director & Senior Partner, BCG, “The Union Budget 2024 is anticipated to introduce significant changes in taxation structure. Taxation changes aimed to simulate consumption are likely to also give a boost to volume growth which has been below potential. Continued investments in physical and digital infrastructure would help in bringing greater efficiency and expansion of the consumption opportunities. A push towards unlocking rural consumption, physical infrastructure and addressing farmer earnings, would really benefit the consumer sector.”
Mayank Shah, Vice President, Parle Products, said, “We are expecting the Budget to focus on rural infrastructure and agriculture related sectors, which would help in revival of the rural economy. We saw that rural consumption was impacted last year; though it is getting revived, this will help further accelerate the revival of rural demand. That will also generate employment in rural India. Also, higher allocation to rural initiatives like NREGA will also go a long way in helping the revival of rural demand. On the urban front, initiatives for job creation will be helpful which would help drive consumption of consumer products. Government needs to take steps that could help put more money in the hands of the consumers. This can be done by lowering the tax rate or increasing the income tax slabs which would result in adding more money in the hands of rural consumers.”
Besides rural consumption, the FMCG sector also advocated for measures centered on addressing immediate economic challenges while fostering long-term growth. Manish Aggarwal, Director, Bikano, Bikanervala Foods Pvt Ltd, said, “We anticipate proactive measures to control inflation, stimulate overall consumption, create rural jobs, and incentivize capital expenditure, innovation, research, and development. Recognizing the critical role of rural economies, we emphasize the need for schemes to boost rural consumption, aiming for a more stable market in 2024.”
He also said that the government needs to introduce policies to protect oilseed farmers and the oleochemical industry. Additionally, the government should also emphasise on capital expenditure and private-sector manufacturing and services to support income generation and economic activity.
Furthermore, the industry also talked about the need for more grants to support the FMCG sector. Shammi Agarwal, Director, Pansari Group, said, “We expect the government to allocate more grants to support the FMCG industry. This financial support can boost innovation, support the start-up ecosystem, and promote research and development (R&D) within the FMCG sector.” In the 2024 Interim budget, the government’s emphasis on achieving Atmanirbharta for oilseeds, including sesame, sunflower, and mustard showed their commitment to pushing the agriculture sector towards growth. This, he added, ensured food security and also opened avenues for sustainable farming practices that benefited both farmers and consumers. “Apart from this, we hope that the government will review and rationalise export and import duties on food items. Reducing these duties can enhance the competitiveness of Indian products in global markets and ensure affordability for consumers domestically,” he said.
The FMCG sector is also looking forward to initiatives encouraging private sector investments in infrastructure, which will not only create jobs but also boost productivity. Per industry leaders, digital adoption and entrepreneurship are poised to drive job creation and economic growth, supported by policies that promote innovation and efficiency. “We are optimistic that Budget 2024-25 will set the stage for a resilient economic recovery, empowering businesses, and will contribute to India’s growth trajectory,” said Saugata Gupta.
Here is more on what the industry leaders and experts are saying and expecting from the Union Budget:
Sunil Agarwal, Co-founder and Chairman, Joy Personal Care (RSH Global)
Key expectations include a reduction in income tax slabs to boost consumer purchasing power, improved access to credit for businesses, and significant GST reforms to lower costs on branded food products. The FMCG sector’s remarkable adaptability to changing consumer behavior has been evident for years. While the upcoming budget is expected to prioritize education, employment, and healthcare, it is essential for other industries to receive a boost as well. Maintaining fiscal responsibility is crucial in this uncertain global environment, but addressing high GST rates on essential FMCG products and enhancing infrastructure development will be vital for long-term growth. Looking ahead, increased government spending and consumer-centric policies like tax reduction offer a promising path for market revival.
Anubhav Agarwal, MD and CEO, BN Group
With a growing economy, strong investor sentiment and consistent increase in consumer spending, the FMCG industry is poised to grow significantly. We expect new regulations that successfully address issues faced by rural communities while protecting the interests of oilseed producers and the oleochemical sector. Furthermore, we anticipate the government will address the gap between MSP of crops and prices for final processed, as it will further boost the growth and development of the sector.
Akash Agrawal, Co-Founder, Zoff Foods
We urge the government to address the current inverted tax structure within the Goods and Services Tax (GST) framework. This structure impacts food manufacturers, hindering their ability to claim the full Input Tax Credit (ITC) due to higher tax rate paid for services and other items as compared to lower tax rate of raw materials. The tax rate on basic raw material procurement and final product is 5 per cent, which makes a significant ITC blockage for manufacturers, leading to an average cash flow deficit of 10-15 per cent. This ultimately translates to reduced investments in production capacity, innovation, and job creation.
Nikhil Sethi, Partner and National Head, Consumer Goods, KPMG in India
The FMCG sector has been constrained for some time now due to low consumption growth and many external factors including elections, increasing commodity prices and tougher regulations. A budget that can help the sector should include initiatives that:
- Provide stimulus to the currently constrained consumption: Accomplishable by increasing tax benefits, allowances and exemptions for individuals and allocating a higher budget for the NREGA scheme.
- Incentivize manufacturing investments for new capacities and innovation: Extending the PLI scheme to include FMCG and consumer goods sectors, aiming to increase domestic production. Offering substantial financial incentives to organizations that invest in innovation, research, technology development, local sourcing, and sustainable practices that contribute to the betterment of the environment and society will not only boost manufacturing but also enhance global competitiveness, employment creation and consumer trust.
- Phase regulatory compliances to synchronize investments required with sales, for instance, that on packaging or formulations.
- Incentivize the ability to export to meet global standards, manufacture value added products, build scale, and so on. Introducing comprehensive tax benefits and simplify export procedures can double FMCG exports by 2026.
- Allocate budget or give subsidies for strengthening value chains across agricultural and dairy sectors by adopting technology/artificial intelligence, automation in food processing infrastructure, waste reduction and crop insurance.
Atul Garg, Managing Director, GRM Overseas Limited
We hope that the budget will include measures to create buffer stocks of essential food grains like rice and wheat to address any shortfall in production and also to avoid export restrictions.
Strengthening access to credit for long-term loans is essential to enhance growth, productivity, and farm income in the agri- commodity sector. Additionally, minimizing wastage by augmenting storage capacities and upgrading warehouses is crucial. Infrastructure still continues to be a challenge and its pan-India development is a critical driver of agricultural growth. Building rural infrastructure, including roads, bridges, storage facilities, cold chains, and veterinary services, can significantly reduce post-harvest losses and improve market access for farmers in remote areas. These measures will lead to increased participation of India in global agriculture and food exports.
We recommend enhancing the budget allocation for the Agricultural and Processed Food Products Export Development Authority (APEDA) to boost farm exports. Establishing district export hubs are essential steps toward achieving these goals.
Siddhartha Nangia, Co-Founder, Smytten
As we anticipate the Union Budget 2024, the FMCG sector is looking for policies that will stimulate both rural and urban demand. Initiatives to improve supply chain efficiency, reduce operational costs, and support digital transformation will be pivotal. We also hope for incentives to promote sustainable packaging and eco-friendly practices, aligning with the global shift towards sustainability. Enhanced investment in infrastructure, particularly in logistics and transportation, will be critical for improving market access and reducing costs. Furthermore, supportive policies for startups and MSMEs can boost entrepreneurial initiatives within the sector.
Priyanka Duggal, Partner, Grant Thornton Bharat
The consumer industry is hopeful for rationalisation of the provisions of accelerated tax incentives for employment generation, simplified tax structures as well as adding incentives for the startups looking at reverse flip to Indian holding companies, retail-centric initiatives for digitisation simplifying the equalisation levy, TDS and TCS provisions. From a direct tax perspective, the interim Budget 2024 seems to have missed extending the concessional tax rate of 15 per cent for new manufacturing companies. Reflecting at the importance and impending growth of the sector, a clear ask from the Budget will be to reinstate the same. With technology and AI becoming critical for retail and ecommerce companies, the need of the hour is promoting digitisation for businesses and introducing accelerated tax breaks on digitisation expenditures.