The Budget 2022 is expected to revive consumption with its focus on infrastructure among others even though it lacks direct measures such as income tax rebates.
“The budget will boost consumption indirectly, rather than directly. The announcements made under PM Awas Yojana and the ones to boost agriculture and rural economy will help in bringing back consumption, which has been declining in the last two years,” said Abheek Singhi, managing director and senior partner, BCG.
According to Economic Survey 2022, released on January 31, private consumption declined to 57.5 percent of GDP in FY22, down from 58.6 percent in FY21. Consumer goods companies, industry experts and economists, hence, were expecting measures to revive consumption.
An increase in capital expenditure will also help the economy, indicated analysts.
“In today’s budget, though there is no immediate relief for consumers or FMCG players, the increase in capital expenditure by 35.4 percent year-on-year to Rs 7.50 lakh crore is great news in the mid to long term. These will go a long way in increasing both direct and indirect employment due to a high multiplier effect, that is, approximately 2.5x for infrastructure investment,” said Purnendu Kumar, practice leader, consumer and retail, Praxis Global Alliance.
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The government announced a slew of initiatives to revive the rural economy. Finance Minister Nirmala Sitharaman announced Rs 48,000 crore outlay under PM Awas Yojana and said the government will build 80 lakh homes for beneficiaries. The government, she announced, will procure 1208 lakh tonnes of wheat and paddy from 163 lakh farmers in FY23, and give them direct payment of Rs 2.37 lakh crore in MSP (minimum support price). The measures are expected to create jobs and increase disposable incomes and hopefully consumption, too.
“MSP direct payments to wheat and paddy farmers, financial support for taking up agro-forestry, and promoting chemical-free natural farming, besides the thrust on financial inclusion by bringing the entire 1.5 lakh post offices into the core banking system are other big positives, particularly for rural India,” said Mohit Malhotra, CEO, Dabur India.
“The higher MSP allocation would go a long way in helping drive consumption of FMCG products in the hinterland,” he added.
Experts, however, expect relief to come only in the long term as urban India will continue to outperform rural areas for some time.
“In the near term, rural demand will remain disappointing and urban demand will be better. A normal monsoon, dip in diesel and fertiliser prices and stimulus from the government will be critical for rural demand recovery,” said Abneesh Roy, executive director of institutional equities at Edelweiss Securities.
Economists also believe that, in the absence of direct consumption support, the economy will recover gradually.
According to Dipti Deshpande, principal economist, CRISIL, by pushing investments, the budget is again batting for a capex-led growth to support the economy, with an eye on the medium term. “The lift in the consumption cycle will therefore depend on overall pick-up in economic activity over time. The government’s intention to continue pursuing a path that enhances growth potential will bring endurance to growth in the medium term,” she added.
Yet, she said, frontloading the capex can act kickstart growth much faster. “Some of the spends -- such as the PM Awas Yojana, PM Gram Sadak Yojana and MGNREGS -- can pave the way for an employment-led income/consumption support. From that perspective, the next fiscal should see the rural economy leading recovery in consumption with majority of these schemes benefiting the hinterland. Similarly, higher allocation for National Highways Authority of India (NHAI) also favours employment creation.”
The FMCG industry, which is battling inflation on one hand and rural economy slowdown on the other, has hailed the budget. Companies such as Dabur, ITC, and Emami expect a boost in consumption driven by budget measures.
“The path-breaking measures address key issues of livelihood generation, enhancing farmer incomes and building climate resilience. The substantive enhancement of public expenditure will create a multiplier impact on growth and competitiveness. The multi-dimensional interventions to usher in next-generation agriculture through digitisation, research and development, leveraging strengths of agri-techs and FPOs, will transform the agri-sector,” said Sanjiv Puri, chairman, ITC.
Harsha V Agarwal, director, Emami Ltd, too, chimed in. “A very forward-looking budget with a focus on capital expenditure which should drive growth. The ease of business in India has also been prioritised. So overall the budget pulls no surprises and focuses on growth of the Indian economy,” he said.
Struggling with tepid rural demand which had impacted sales volumes in the quarter gone by, FMCG companies had sought government intervention to boost consumption in the economy.
Sanjiv Mehta, chairman and managing director, HUL, while addressing a post-earnings virtual briefing in January had said the government needs to increase the outlay under MGNREGS and continue with its other schemes such as direct cash transfer and food subsidies which have supported rural areas of the country even as COVID-19 wreaked havoc in urban areas. HUL had flagged signs of a slowdown in the hinterland in the September quarter and said the demand in these areas had weakened in the December quarter.
