Boost rural consumption

Rural consumption, which accounts for 36% of overall FMCG sales in India, is at its lowest in seven years.

Short of funds, wholesale and small retailers in rural areas are not stocking up on inventory forcing, consumer goods companies to enter into direct distribution. “Slowdown in rural consumption and liquidity challenges faced by our distribution partners are two pain points,” said Sameer Shah, head-finance (India and SAARC) and investor relations at Godrej Consumer Products Limited (GCPL).

To arrest the rural slowdown, Sitharaman will have to announce some big bang stimulus measures. “The government could incur higher expenditure in 2020-21, amid subdued private consumption and investment,” said Madan Sabnavis, chief economist at Mumbai-based Care Ratings.

The government could consider increasing the cash benefits under the existing Pradhan Mantri Kisan Samman Nidhi, a scheme promising an annual assured income of Rs6,000 ($84.5) for farmers who own up to 2 hectares of land. “Such a move will provide more disposable income in the hands of farmers, encouraging higher spending,” said Care Ratings in a note on Jan. 22.

Generate employment

The ongoing stress in India’s automobile and manufacturing sectors has hit the rural economy as migrant workers from the hinterland have lost their jobs. “Weak economic growth has resulted in lower job creation and therefore reduced consumer spending,” said Vahishta Unwalla, research analyst, Care Ratings.

To reverse the rural distress, Sitharaman can allocate more funds to India’s rural employment programme under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).

“Although allocation towards MGNREGA declined marginally in the 2019-20 budget, we believe there will be an around 10% increase in allocation in the upcoming budget as it is linked directly with rural employment,” said Unwalla.

Personal income tax cuts

The government should look at reducing personal tax rates in line with the corporate tax cut announced in September 2019, recommends Dabur India chairman Amit Burman. “This would put more disposable income in the pockets of consumers, thereby fuelling consumerism,” he told The Economic Times.

The company, best known for its Vatika shampoo and Real juice, derives 45-47% of domestic sales from rural markets.

“Reduction in personal income tax would also provide a reasonable impetus to our economy,” said Shah of GCPL.

Even a small relief in personal tax rates will go a long way, say experts. “The basic exemption limit of Rs2.5 lakhs may be revised to Rs3.5 lakhs or higher. The government should rationalise higher tax slabs as well,” said Parizad Sirwalla, national leader, global mobility services tax at Gurugram-based consultancy firm KPMG India.

Any turnaround in the FMCG sector is going to be slow, caution experts, given the Indian economy is forecast to grow at its slowest pace (5%) in 11 years this financial year. “The slowdown is expected to persist in the FMCG sector until the third quarter of FY2021,” said Unwalla of Care Ratings.

A lot depends on whether Sitharaman is willing to dole out big incentives.

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