The COVID-19 pandemic and subsequent lockdowns had negatively impacted consumer demand with households in the country scaling back spending on all discretionary items. All eyes during Finance Minister Nirmala Sitharaman's Budget 2021 speech were on what she would announce to boost consumption and revive economic growth in the country.

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While the Union Budget didn't feature any direct incentives to boost consumer spending, the FMCG industry believes that increased spending on healthcare and infrastructure is set to boost consumer demand as it will spur investment and create jobs. The industry also cheered no increase in direct taxes and the absence of other similar negatives such as a COVID cess.

The government not only increased budgetary allocation for healthcare by 137 percent this year, infrastructure also saw prominence through the Production-linked Incentive (PLI) scheme and monetization of public infrastructure assets.

Mohit Malhotra, CEO of Dabur India called the Union Budget a forward-looking one with a focus on economic growth, infrastructure development and privatization, besides supporting employment generation. He said that the Budget takes the investment route to drive long-term economic growth with a focus on Healthcare.

"At a time of unprecedented economic stress when the government had little headroom for manoeuvre, the Finance Minister has rightly chosen to focus on higher capital expenditure and investments to pump up the economy. The 34% higher allocation under Rural Infrastructure Development Fund to Rs 40,000 crore will hasten development of infrastructure for agri and allied activities, social sectors and rural connectivity.

"This would go a long way in improving penetration and helping drive consumption of FMCG products in the hinterland. Dabur is investing on strengthening its rural footprint to 60,000 villages by the end of this financial year from 52,000 villages in March 2020. It's heartening to see the government take the bold move towards higher borrowings to focus on long-term growth. Overall, I would call it a growth-oriented and progressive Budget that lays down the blueprint for creating an enabling framework that would promote an Atmanirbhar Bharat," he added.

A similar sentiment was echoed by ITC Chairman and Managing Director Sanjiv Puri, who said that the growth-oriented budget that provides further impetus to build India’s competitiveness as also foster inclusive growth. “The enhanced capital expenditure, particularly on infrastructure, will create livelihoods and provide an accelerated thrust to the V-shaped recovery trajectory. The heightened spends on agriculture and rural infrastructure development are aligned to the comprehensive policy interventions aimed at creating competitive agri value chains to raise farm incomes. These augur well for the economy and will spur a virtuous consumption-investment-employment cycle,” he added.

In a rare move, the government also didn’t announce any sin taxes, as a result of which cigarette prices will not see a hike this year, unlike every year. This was a big positive for ITC, which saw its stock surge by over 6% on Monday.

After a record contraction in India’s GDP growth over the past two quarters, a boost in consumer sentiment comes at a time when consumer companies have been posting healthy earnings for the October-December (Q3) quarter. Hindustan Unilever, which saw a 4 percent volume growth, is quite pumped about urban demand bouncing back as mobility increases, thus boosting discretionary spends. Dabur too, saw a healthy volume growth of 18.1 per cent, while Marico’s volume growth came in at 15 percent

Aditya V. Agarwal, Director, Emami Group also said a focus on infrastructure and rural sector provides major impetus to the industry in the long term.

“With key focus on building an Atmanirbhar Bharat, there are significant allocations for infrastructure building especially for rural India. The budget enhances allocation to agri-credit and also prioritises the agricultural and agri-allied sectors. All these measures are expected in generating an increase in rural consumption which is necessary for reviving the Indian economy,” Harsha v. Agarwal, Director, Emami added.

Varun Berry, MD, Britannia Industries said that no changes in direct taxes, capital gains taxes or STT, or any form of Covid tax are steps in the right direction to improve consumer sentiment, and that the budget bodes well for consumption and revival of the economy.

Saugata Gupta, MD and CEO, Marico Limited said that the budget prioritises spending to revive the economy after an unprecedented crisis, despite limited fiscal headroom and will aid the industrial sentiment in India greatly.

Boosting in consumer spending will mean higher sales and volume growth for FMCG companies.

Amit Syngle, MD & CEO, Asian Paints also said that the budget provides the impetus for demand and should benefit the entire Indian paints and coatings industry. “The government’s thrust to increase expenditure with revived focus on creating jobs and consumption augurs well for the Indian economy in the current scenario,” he added.

“Focus on ‘Make in India’, increased custom duties, ‘Atmanirbhar Bharat’, ‘Infrastructure’, construction, capital expenditure, etc is definitely going to result in promoting domestic manufacturing, improving employment etc. Sourcing structures for retailers and FMCG companies dependent on imports may have to be revisited and focus on sourcing India-made products may increase. Purchasing power in the hands of rural and urban consumers through heavy spend on healthcare, infrastructure, housing, market borrowings and spend, is likely to make retailers and consumer companies smile. Further no increase in direct taxes is likely to add cherry to the cake,” Paresh Parekh, Partner & National Tax Leader, Retail Sector, EY said.

Harsha Razdan, Partner and Head, Consumer Markets and Internet Business, KPMG India further added that increasing investments in rural infrastructure, MSME development, job creation and MSME Support, farmer productivity are the big themes from this budget aimed at driving growth in the coming year. “Rural consumption is key and the government has considered significant investments in building rural infrastructure ( 40000 Cr ) – roads, public transport, ports and railways. Further, a number of measures rolled out in agriculture will drive rural consumption. In a bid to support MSMEs, INR 15,700 crores have been allocated. Further, rationalizing duties on raw material inputs and several other items will help encourage domestic processing,” he added.

However, Goldman Sachs is of the opinion that there was no significant increase in the allocation for the MGNREGA scheme, while allocation to PM Kisan scheme (for small farmers) is flat year-on-year at Rs 650 billion. While the allocation for MGNREGA was significantly during the pandemic to support the incomes of migrant labor, Goldman Sachs says it was unlikely that the government will maintain a similar allocation. “However, we believe the 34% YoY decline is likely to impact rural consumption next year, and we remain cautious on rural focused stocks like DABU, EMAM and HLL. That said, the FY21 allocation of Rs 1,115 bn (if utilized completely) indicates Rs 111 bn each month in February and March 2021, which is higher than the YTD monthly average of Rs 89 bn,” it added.

First Published:Feb 1, 2021 8:41 PM IST