During the last four years the government has implemented several positive policies, like Make-in-India, Skill India, Demonetisation, GST, liberalisation in FDI, improving infra, etc. The strong social, economic and fiscal policies resulted in consistent high growth rates, record FDI inflows and improved ease of doing business ranking of India. The Budget FY19 was announced during a phase when the Indian economy is rebuilding momentum after demonetisation and GST, coupled with a delicate fiscal deficit scenario.
The Budget has continued to deliver on the government’s development agenda of enhancing the rural economy and doubling farmers’ income, supporting the poor and underprivileged, developing infrastructure, promoting digital economy and prudent fiscal management. Given that over 50% of India’s population resides in rural areas and 65% is of the age 15 and 64 years, the Indian consumer products and retail sector will certainly reap the benefits arising out of the implementation of the polices proposed in the Budget—on account of the large consumer base in rural India.
The finance minister announced policies focused on providing livelihood opportunities in rural India, boosting agriculture and food processing. Some key steps in this direction include allocation of Rs 1,400 crore to the Pradhan Mantri Kisan Sampada Yojana (nearly double the previous allocation of Rs 715 crore); Rs 10,000 crore for infrastructure development in the fisheries, aquaculture and animal husbandry sectors; minimum selling price of kharif crops at 1.5 times the cost of their produce; a 100% income-tax deduction from FY19 up to FY24 has been proposed for farmer producing companies with a turnover of up to `100 crore. With a view to boost India’s agricultural exports, which are anticipated to exceed $100 billion (currently $30 billion), exports of agri-commodities will be liberalised and state-of-the-art testing facilities will be set up in all the 42 mega food parks.
The Budget lays thrust on construction of strong rural infrastructure with a record allocation of Rs 14.34 lakh crore. It is expected this will create employment of 321 crore person days, 3.17 lakh km of rural roads, 51 lakh rural houses, 1.88 crore toilets, and provide 1.75 crore new household electric connections, besides boosting agricultural growth.
The implementation of these policies could result in higher disposable incomes with the rural population, consequently resulting in increase in demand and consumption of consumer product goods by rural India, and aiding FMCG companies to cater to a high growth market on the back of improved rural infrastructure.
To boost the textile sector, `7,148 crore has been allocated as the comprehensive textile package (an increase from Rs 6,000 crore in the previous Budget). A similar scheme has been proposed to be introduced for leather and footwear industries. With a view to boost employment and incentivise leather and footwear, it is proposed to extend the tax incentive of 30% deduction on wages paid to new employees employed for a minimum of 150 days to the companies engaged in the manufacture of leather and footwear as well.
To promote Make-in-India, customs duty has been hiked on import of several consumer products such as sunglasses, perfumes and make up, shaving and after-shave preparations, fruit and vegetable juices, edible oils of vegetable origin, watches, toys, etc. An additional 10% social welfare surcharge is proposed to be levied. Certain large MNCs may evaluate their sourcing strategy for Indian operations—shifting from an overseas manufacturing and importing model to an Indian manufacturing and exporting model.
While these proposals are welcome, the consumer products and retail sector was hopeful for some relaxation to individual taxation regime in order to increase the disposable incomes and boost consumption growth. Mom-and-pop retailers in the country are experiencing stiff competition from modern retail stores, and had their hopes pinned on a more favourable and liberal tax reforms for them, like reintroduction of presumptive taxation for retail traders.
Overall, the Budget has stayed the government’s course of driving economic growth while trying to curtail the rise in fiscal deficit and inflation.
By Ashish Kasad, Partner, Tax, Retail and Consumer Products, EY. Views are personal
(Saral Barlota, senior tax professional, EY, contributed to the article)