Lack of big-bang reforms leaves corporate India asking for more

Industry leaders say lack of bold measures in the Budget will prolong consumption slowdown

The Union Budget, tabled on Saturday by Finance Minister Nirmala Sitharaman, has evoked sharp reactions from the corporate sector. Veterans, such as Godrej Group chairman Adi Godrej, are disappointed with the lack of big-bang announcements, saying .

“There is nothing much in the Budget,” Godrej said unequivocally when contacted for his views on Saturday. “The finance minister has made small, incremental changes. That’s it. The attitude has been to give from one hand and take from the other. What good does that serve? The economy is in a bad shape. We need bold measures, which have not happened at all,” he added.

Market researcher Nielsen had said last week that the domestic fast moving consumer goods (FMCG) market had hit its lowest level in six quarters during the October-december 2019 period. It added that it saw a turnaround in January-march 2020. But some corporate executives think otherwise.

The head of a top FMCG company based in Mumbai said the Budget was in many respects the “last resort” to revive the economy.

“Look what the International Monetary Fund (IMF) said a few weeks ago. That the Indian economy had slowed to under 5 per cent, and it was contributing to the global slowdown in the current fiscal. In my view, there was an urgent need to announce some key measures to get consumers back into the market. It is important to lift sentiment during these tough times,” he said.

The big expectation going into the Budget was that income tax rates would be tweaked significantly to kick- start consumption. Instead, the finance minister has reduced tax rates for earnings up to ~15 lakh only, while no tax will be applied on income up to ~5 lakh. Above all, there is a rider attached to this: No exemptions will be allowed if the taxpayer opts for the new rates.

RC Bhargava, chairman, Maruti Suzuki, admits that no income tax cuts for those earning more than ~15 lakh is a dampener, adding at least those in the bottom-of-the-pyramid will have greater room to spend.

Whether this translates into actual consumption or not is a question mark, something that Varun Berry, managing director, Britannia Industries alludes to.

“It remains to be seen which of these levers, including rural, infrastructure, entrepreneurship and financial sectors, will fire and to what extent after the government’s attempt to activate them in the Budget,” he said.

Apart from reiterating that the government was committed to doubling farm income in two years, Sitharaman also allocated ~2.83 trillion for agriculture and allied activities.

They include irrigation, rural development and Pachayati Raj for FY21.

The finance minister also presented a 16 -point plan to revive the farm sector, including encouraging states to take up model agricultural laws and undertaking comprehensive measures for 100 waterstressed districts.

“There is a lot more focus on where the money will be spent in the agricultural sector. This Budget is not about hand-outs, but structural change in the agri sector, which, in turn, will have a long-lasting impact. The flip side is that you will not see anything tomorrow. The Budget may not change anything in immediate term, but addresses long-term structural issues,” said Pawan Goenka, managing director, Mahindra and Mahindra.

Goenka expects demand for tractors to be strong in the coming months due to a good rabi crop.

Also, the proceeds from the rabi crop will help kharif sowing, he said.

HK Pradhan, professor of finance and economics, Xavier Institute of Management (XIM), said that the government has pushed “hard choices” on the middle class. In what way the removal of dividend distribution tax (DDT) will help the tax burden of investors is to be seen, as they might pay up more by way of income tax,” he said.

Pradhan, who is also Chair of the Financial Market Centre at XIM, said the Budget has not addressed the demand slackening appropriately or measures to revive rural consumption, which has been instrumental in driving the overall consumption slowdown.

“The finance minister leaves challenges of growth revival to the market. What would hinder growth would be higher interest rates, unclear infra financing and lack of specific measures to enhance credit flows from banks,” he added.