Budget 2023: Tweak tax slabs at bottom end for more disposable income, says Marico's Saugata Gupta

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The worst of inflation is behind us, but consumers certainly need more money in their hands to drive FMCG (fast moving consumer goods) demand, believes Saugata Gupta, managing director and chief executive officer of Marico Limited.

“We have been seeing soft consumption trends in rural markets and mass categories because of the inflation triggered by Ukraine-Russia war. Whenever there is high food inflation, consumers titrate or downtrade in FMCG,” Gupta said in an interview to Moneycontrol.

Watch: Budget 2023: How Can Budget Spur Consumer Spending?

‘Downtrading’ is a consumer behaviour when buyers either moved to lower unit packs or switch to cheaper regional alternatives. This has been one of the major reasons behind low single-digit volume growth witnessed by FMCG companies in 2022.

That said, retail inflation moderated to 11-month low of 5.9 percent in November 2022. It eased further to 5.72 percent in December. “I think the worst of inflation is over and India has coped with it far better than a lot of countries in the world. But, domestic consumption needs a fillip,” Gupta said.

“For the middle class and those with low salaries, the government should look at tweaking income-tax slabs at the bottom end. This will ensure more money in the hands of consumers,” he added.

According to some industry experts, the basic income tax exemption limit might be raised from Rs 2.5 lakh to Rs 5 lakh, and standard deduction of Rs 50,000 could be enhanced to around Rs 80,000.

In search of volumes

When raw material prices soared in 2022, FMCG companies took price hikes to pass it on to consumers. Higher prices, in turn, affected rural demand. “Now that crude price has stabilized, vegetable oil has stabilized, either there will be price cuts or companies will reverse shrink-flation and go back to original grammage,” said Gupta.

He is certain that rural demand will improve in the next three-four quarters as on back of easing inflation.

“The primary objective is to protect volumes and market share. It’s far more difficult to get back a lapse consumer, it's much easier to get back margins,” he said.

Also Read: Marico expects 'modest' growth in Q3 operating profit

So, what else can bring back volumes to the FMCG sector, thus driving earnings growth? Gupta believes the Government should continue to support the poor. “The pandemic-era free food programme that has now been converted into the PDS (public distribution scheme) ensures that India’s poor are protected from food inflation,” he explained.

Putting money in hands of consumers through subsidies is a short-term approach, and according to him, Government should invest more in infrastructure, product-linked incentive schemes and rural employment programme to drive productivity.

“I am reasonably optimistic about the current economic situation,” he concluded.