In the midst of a short-lived roller coaster ride, India Inc is hoping and looking forward to some big-ticket reforms from the upcoming Budget to be presented on 1 February 2020. That being said, it would be rather unfair to expect the Budget to set the economy on a high growth path straightway. We hope that it looks at some tangible reforms when it comes to driving consumption and reviving growth. Looking at the current economic situation, here’s a quick outline of what could be the highlights in the upcoming budget:
Rural potential to be key: If the last few years is anything to go by, rural consumption has been key to India’s growth. Fast-moving consumer goods (FMCG) and retail majors have witnessed major sales uplifts from rural areas, mainly driven by increased disposable income coupled with a change in aspirations and increased awareness about brands. This year, we think the focus could be on additional efforts to support rural growth and development. That would mean a good set of initiatives towards improving the rural infrastructure and driving rural consumption
Riding on agricultural success: Agricultural growth will continue to play a pivotal role in India’s growth story going forward. The past few years has seen the launch of multiple schemes by the government, like the Pradhan Mantri Fasal Bima Yojana and the Pradhan Mantri Kisan Samman Nidhi, providing Rs 6,000 per annum to farmers. We think the Budget is likely to focus on increasing the realisation of farmers’ produce and availability of disposable income in the hands of farmers to spur consumption. In last year’s Budget, the government announced a desire to set up about 10,000 FPOs (Farmer Produce Organisation) in five years. Further, some benefits like tax exemptions for FPOs, capital funding for setting up FPO, and channels for direct access to the market could help drive thrust in FPOs. We can anticipate increasing investments in farmer-friendly agri-technologies focused on increasing crop yields.
Make in India to gain momentum: Last year, 100 percent Foreign Direct Investment (FDI) via the automatic route for contract manufacturing was introduced, which was a good step clearly indicating thrust on the ‘Make in India’ initiative. The export subsidy announced for exporting sugar provides a clear picture of the government’s agenda to give a fillip to exports. We expect more such initiatives this year as well since it will positively impact job creation and improve investor sentiments abroad.
Threshold for income tax exemptions to increase: This has been in talks for a long time with several leading industry experts expecting a reduction in income tax slabs. Should this be announced, it could put more disposable income in the hands of the aam aadmi, which is directly proportional to increased spending power.
Digital inclusion drive to continue: The government’s efforts towards making India a cashless economy will drive efficiency and transparency in the economy. The Budget should look at giving further impetus to digital payments like UPI, credit card and debit card payments. Recent announcements on allowing single-brand retailers to start online stores did align well with the ‘Digital India’ initiative and more such initiatives on this line will only augur well.
Supporting MSME development: This Budget should also look at focusing on the growth of small and medium enterprises (MSME) as they can support the nation’s need to generate significant employment across sectors and provide necessary growth in GDP. Enabling entrepreneurship is key and changes such as simplifying tax structures, easing working capital requirements and encouraging investments can play a big role in energising the MSME space.
All in all, the Budget this year should look at driving growth via consumption while increasing investments in rural infrastructure, and measures to rekindle investment cycle to drive disposable income. We also expect focused efforts towards increasing rural employment, skill development of rural youth, MSME growth, job creation, farmer productivity improvement and infrastructure development to be key areas of focus for the coming year.
(The writer is Partner and Head, Consumer Markets and Internet Business, KPMG in India)
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Updated Date: Jan 22, 2020 13:14:34 IST