Rise in demand may be limited to FMCG: Experts

Finance minister Piyush Goyal ‘s 103-minute interim budget speech had 35 mentions of the term “middle class,” a constituency that, together with the farming community, occupied much of the National Democratic Alliance (NDA) government’s attention in the fiscal package he announced on Friday.

Ahead of the general elections, the government’s focus was on aiding downbeat middle-class consumer sentiment by putting more money in the hands of urban and rural households

For the middle class, Goyal proposed a tax rebate for individuals earning up to ₹5 lakh a year, who he said will not have to pay any tax starting in the next financial year.

Only those earning up to ₹2.5 lakh per annum had hitherto been exempt from paying income tax. Together with other exemptions and tax deductions, even those earning up to ~10.15 lakh a year can avail of the benefit.

“Reducing the tax burden on middle class has always been our priority ever since our government took over in 2014,” said Goyal.

The government also proposed a ₹75,000 crore package for farmers under which those who have up to two hectares of land will receive ₹6,000 per year in three instalments.

“We hope the measures announced will further accelerate domestic consumption,” said a spokesperson for Nestlé India, maker of Nescafe, Maggi noodles and KitKat chocolate.

While these sops will put some extra money in the hands of the two classes of consumers and boost demand for items of daily use and low-cost staples, they are not expected to lift purchases of more expensive items, executives at other consumer goods companies said.

“The sum of money being offered to farmers is not huge. Even the tax benefits given to the middle-class will at best aid consumption of grocery items like toothpastes, soaps, health care products, beverages etc. While this budget will spur consumption and improve consumer sentiment, which is very virtuous, the country needs more than just increased consumption. Issues of joblessness and infrastructure development remained unanswered,” said Sunil Duggal, chief executive at consumer goods firm, Dabur India Ltd, maker of Dabur Amla Hair Oil, Real juices and Odonil air fresheners.

Some executives were extremely sceptical about the interim budget having a positive fallout on consumption. “This budget is unlikely to boost consumption because people are more worried about joblessness. Consumers will offset their debts as opposed to making planned purchases with the extra disposable income in their wallets,” said a top executive at a leading retailer on condition of anonymity.

According to Manish Sharma, chief executive at Japanese electronics maker Panasonic (India and South Asia), putting potential disposable income of ₹13,000-15,000 per year in the hands of salaried employees will have a direct impact on demand for consumer appliances, especially affordable smartphones.

“In terms of the need hierarchy, smartphones would be on top of the Indian consumer’s list followed by other low-cost appliances,” he added.