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Last Updated : Feb 01, 2019 06:20 PM IST | Source: Moneycontrol.com

Budget 2019: Farm package to boost rural spending, benefit FMCG industry

The FMCG and retail industry has given a thumbs up to the budget as it will bring in more money in the hands of the consumers and have terms the budgetas a consumption-oriented budget

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The fast-moving consumer goods sector (FMCG sector) is likely to reap the benefits of the government’s thrust on the farm sector announced in the Union Budget 2019.

Finance Minister Piyush Goyal announced a relief package of Rs 75,000 crore under a new scheme PM Kisaan Samman Nidhi for distressed farmers who have seen their incomes stagnate because of plunging prices, barely enough to pay for loans and input costs.

As part of the package, that includes an income support scheme, the government will transfer a sum of Rs 6,000 per year to farmers who own up to two hectares of land.


“Assured income to be transferred via Direct Benefit Transfer in three equal instalments. This will be funded directly by the government of India,” Goyal said while presenting the interim budget 2019-20.

The scheme will be applicable from December 1, 2018, and will benefit 12 crore farmers.

“If implemented in the time bound manner, announcement towards farm and rural sector would help ignite rural consumption which otherwise is muted," said Arun Singh, Lead Economist, Dun and Bradstreet.

The FMCG and retail industry has given a thumbs up to the budget as it will bring in more money in the hands of the consumers and have termed the budget a consumption-oriented budget.

The Interim Budget proposals should augur well for the  Indian  economy by providing a growth impetus a  boost  in  consumption  as  well as an inclusive  framework  designed to benefit agri and rural  communities,  unorganised sector workers as well  the  middle class," said Sanjiv Puri, Managing Director, ITC Ltd.

The PM Kisan Samman Nidhi programme,  the  move  to  set up 1,00,000 digital villages  and  the increase in allocation to rural infrastructural  development will indeed go a long way in enabling empowerment of rural communities.

For FMCG companies, the introduction of such schemes will result in an enlargement of the revenue pie as it will bring people, earlier unable to afford such goods, into the market.

“A host of measures by the Government to boost the agrarian economy through minimum support price and increased investment in the farmer scheme is a welcome move as it will benefit small and marginal farmers," said Saugata Gupta, Managing Director and Chief Executive Officer, Marico Ltd.

"Simplified tax assessment processes coupled with the increase in tax exemption for income upto INR 5 lakh per annum for individual tax payers, will not only reduce the tax burden on the middle class citizens but also increase the tax payer base in India. It will additionally result in the rise of disposable income in the hands of consumers thereby augmenting consumption," Gupta added.

He also said that given its focus on masses, this budget should place higher disposable income in the hands of a large section of the society which augers well for consumer goods sector in general and rural growth more specifically.

Nielsen India expects the FMCG industry to grow at 11-12 percent in 2019 as against 13.8 percent in 2018. However, the market research firm has not accounted for the possibility of a universal basic income like scheme.

Goyal also said Rs 60,000 crore was allocated for MNREGA for FY20 and proposed assured income to small farmers. He said the government will provide more funds for MGNREGA if required.

Further, Finance Minister also announced a  move that will benefit farmers across India. Piyush Goyal announced 2.5 percent interest subventions for farmers struck by natural calamities. Along with that, he also announced 2 percent interest subvention for animal husbandry and fisheries sector.

For the past few months, the surge in agribusiness and rural sales has been the driving factor of the future growth potential of FMCG businesses in India. Rural contributes 35-40 percent of overall sales value. About 65 percent of Indians live in villages and small towns.

In the last few years, implementation of Goods and Services (GST) and demonetisation had hurt the spending power of the middle class, particularly from rural areas. Today's announcement on the benefit to farmers is likely to give a boost to the farm income boosting FMCG sector.

Reacting to the announcement, FMCG stocks such as ITC, Hindustan Unilever, Marico, Dabur were up 1-2 percent.
First Published on Feb 1, 2019 02:35 pm