Limited sops from the Budget for consumption with no direct rural benefit

FM Nirmala Sitharaman said that the government will help develop workers' accommodation and enable transparent rental housing

Highlights

• Moderate increase in rural development and welfare measures
• Duty reduction and incentives restricted to a few segments
• Increased standard deduction and enhanced tax slabs to support urban consumers
• Easing inflationary pressures and rising incomes to lead to a pick-up in the consumption space

The consumption sector has been lagging the overall economic growth. Private final consumption expenditure (forms about 55 percent of the Gross Domestic Product) has grown by 4 percent in FY24 as against the overall GDP growth of about 8.2 percent. High inflation environment had curbed discretionary spending, especially in rural areas, thus affecting  consumption.

There was a limited increase in rural development and agricultural spends to boost rural consumption, which is particularly under pressure. The allocation towards agriculture and farmer welfare (incentives such as crop insurance, interest subvention schemes) stood at Rs 122,528 crore this fiscal, a marginal 5 percent increase compared to the revised estimates of 2023-24. Moreover, the department of rural development (rural employment initiatives such as MGNREGA, Gram Sadak Yojana and rural livelihood schemes) has seen a moderate increase of 4 percent YoY.

Measures to boost employment by reducing custom duties and providing incentives have been restricted to a few sectors such as jewellery, footwear and leather accessories, solar, and aquaculture sectors. There has been no sector addition to the PLI (production-linked incentive) scheme which can boost manufacturing and create jobs.

The government has enhanced the standard deduction from Rs 50,000 to Rs 75,000 in the Union Budget. Also, tax structure in the low to middle slabs has been raised slightly upwards thus reducing the tax liability. As per the calculations of the Finance Ministry, owing to above changes, a salaried employee under the new tax regime would save upto Rs 17,500 in income tax. Tax savings would enhance the disposable incomes and provide boost to consumption, but the move is directed more towards the urban strata of consumers employed in formal sector.

Also, the reduction in import duties from 15 percent to 6 percent on precious metals such as gold, silver, and platinum is expected to boost demand for the jewellery sector.

While the Budget falls short on consumption push, there could be a pick-up in growth in FY2025. With easing inflationary pressures, higher minimum support prices for crops, and the expectations of a normal monsoon will provide fillip to consumption demand and stimulate growth for FMCG and rural companies. FMCG stocks such as HUL, Dabur, and Emami and rural-centric retail companies like Hero Motocorp, M&M, Relaxo Footwear, and Cantabil Retail India are likely to see a pick-up in demand.

We also expect acceleration in growth for companies having urban focus due to tax sops and the rise in national incomes due to higher GDP growth. Companies such as Trent and Aditya Birla Fashion & Retail (apparel), Metro Brands (footwear), Jubilant Foodworks and Devyani International (Quick service restaurants), and Havells (urban consumption) should benefit.