India's fast moving consumer goods (FMCG) companies expect a revival in demand, which will largely depend on what stimulus package is going to be announced in the upcoming Budget.
This will lead to more money in the hands of people to spend that could be announced in the form of lower income tax slabs, job creation and direct benefits for rural consumers.
Currently, the sector is facing a lot of challenges.
Lack of adequate liquidity continues to keep traditional trade channels weak in most parts of India.
Consumers' offtake in rural regions is far from encouraging due to lack of government support in terms of crop pricing and subdued growth of non-agricultural incomes.
High unemployment, rising inflation rates and minimal uptick in income levels are taking a toll on urban demand.
The upcoming Union Budget 2020 will be presented by Finance Minister Nirmala Sitharaman on February 1.
Based on the views collated by Moneycontrol, expectations from the Budget predominantly hinge on the following:-
Announcements pertaining to pricing support and incentives/subsidies
This will be pivotal in boosting farmers' income, which, in turn, would have a positive rub off on the turnover of FMCG majors. In the context of an agrarian nation like India, nearly three-fourth of the consumption is from the hinterland alone.
Reconsideration of personal income tax slabs
Quite a few measures have already been undertaken to boost the supply side of the economy. However, this is not supported by a conducive demand environment. To revive the sluggishness and provide a fillip to disposable incomes, the government should consider raising the taxation limits for individuals.
More jobsOnce sales seem to be getting back on track, FMCG companies would consider investing in capacity additions and hiring more people.
On its part, the government will have to be proactive in bringing about labour reforms (to boost wages, and consequently, savings) and creating new employment opportunities through sops to various sectors.
Reduction of GST rates
Reduction in GST rates in all FMCG items to a single rate bracket would give policy certainty and a manufacturing vision to FMCG industry. New FMCG manufacturing will create more low skilled jobs in quick time.
Neighbourhood stores facing shutdown
E-commerce companies have invaded sales of very low cost elementary products like basic biscuits, cheap cereals and cheap grains. Small grocery and FMCG shops should get tax break to a certain annual income to help them revive.
As per the Ministry of Statistics and Programme Implementation, India's GDP growth for FY20 is estimated to be around 5 percent, the lowest in about a decade.
Consumption uptick will be of critical importance in reversing the persistent slowdown, much before the capex cycle picks up pace.
On the flipside, at this point in time, the big challenge for the government is revenue shortfall due to depressed corporate activity and low tax collections.
So, the Finance Ministry will have to do a balancing act of sorts to keep flows to the exchequer intact while simultaneously bolstering the spending sentiment.
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