Statement from Rajat Wahi, Partner and Head of Consumer Markets, KPMG in India
Overall Consumer Markets perspective
The Union Budget for FY17 is a pro-agriculture, pro-rural sector budget. The Finance Minister has highlighted agriculture and rural sectors as two of the nine pillars of this year’s Union Budget. The provisions for this year’s budget are expected to revive rural consumption, which has been subdued for the past two years primarily due to poor monsoon and untimely rains, and has had a detrimental effect on overall consumption across all sectors in the last 2 years.
The move to create a unified agricultural market e-platform will benefit food-based FMCG companies, as this is expected to make procurement processes easier and more transparent, when compared to the APMC route. In addition, the permission for 100 per cent FDI in the marketing of food products is expected to bring in more investments into the food processing sector, especially the downstream supply chain, as well as allowing foreign multi-brand retailers to set up food-only retail stores.
With almost INR2,18,000 crore allocated for both roads and railways in FY 16-17, physical linkages are expected to improve significantly, which will help expand distribution across India, especially in to rural markets, and will also reduce transit losses by improving connectivity.
There were no significant announcements on FDI in retail, which was expected considering that the government in November 2015 had announced significant changes to the FDI policy.
The additional excise duty on unmanufactured tobacco and cigarettes is expected to negatively impact the organised tobacco industry further.
There has been a marginal increase of countervailing duties (CVD) by 0.75 per cent and excise duty by 0.5 per cent on refined gold and silver bars. This increase, as well as the withdrawal of exemption on jewellery articles, is expected to result in the increase in price of jewellery.
With the aim to promote ‘Make in India’, customs duty on specific fibres and yarns has been halved to 2.5 per cent. However, branded apparel will become costlier due to the increase in excise and tariff value for readymade garments.
The increase in the abatement rate for footwear from 25 per cent to 30 per cent, and the reduction in excise duty for rubber soles is expected to have a positive impact on the footwear industry.
The proposed excise hike of 10 per cent to 15 per cent for tobacco products (excluding beedis) is expected to negatively impact the organised tobacco sector. The unorganised sector, primarily beedi manufacturers, will not be impacted.
FMCG – White Goods
There have been no significant announcements in this sector.
FMCG – Brown Goods
The reduction in excise duty for network internet devices has been announced keeping the Digital India initiative and Digital Literacy Mission Scheme in mind.
As retail sector is one the largest employers in the country, the government has proposed permitting the opening of retail shops for all seven days of the week and to float a model shops and establishment bill. If adopted by the states, it is expected to benefit the small retailers, generate more employment in the sector, as well as create uniformity in retail operations across the country.
There is a major focus on agriculture and rural sectors in the Union Budget, with the government aiming to double the income of farmers by the year 2022.
The total budgetary allocation for agriculture and farmers’ welfare is INR35,984 crore in FY17. The irrigation sector has received a significant focus, with the government allocating INR17,000 to stalled projects under the Accelerated Irrigation Benefits Programme (AIBP) and a further INR12,517 crore to the Long Term Irrigation Fund created under the NABARD, through budgetary allocations and market borrowings.
In addition, the focus on organic farming is expected to help farmer incomes in rain-fed and stressed areas.
The proposed allocation under the Pradhan Mantri Grameen Sadak Yojna has been increased to INR27,000 crore, with the aim of connecting 65,000 eligible habitations by constructing 2.23 lakh km of roads by 2019. This is expected to significantly improve farm-to-fork linkages, facilitate expansion in distribution for consumer goods companies, and reduce wastage in the value chain.
The government also announced its commitment to achieving 100 per cent village electrification by 1 May 2018, for which INR8,500 crore has been provided for Deendayal Upadhayaya Gram Jyoti Yojna and Integrated Power Development Schemes. This will further benefit the rural markets by improving cold chain infrastructure thereby reducing wastage, improving availability of perishables and increasing farmer income by reducing dependence on fuel.
To improve supply of farm credit, the target for agricultural credit has been increased to INR9 lakh crore for FY17, with a provision of INR15,000 crore towards interest subvention.
The allocation under the MGNREGS has been enhanced from INR34,700 crore to INR38,500 crore in FY17. This is expected to provide an additional safety net for the rural workforce during the non-harvest season.
Overall, the rural sector has received an allocation of INR87,765 crore in FY17.
The focus on improving irrigation and productivity, as well as rural infrastructure, and providing a safety-net for farmers through the credit and insurance schemes such as the Pradhan Mantri Fasal Bima Yojna is expected not only to revive rural demand but also improve linkages in the agri-food value chain, and also allow consumer goods firms easier access to rural markets.
Food processing sector
The operationalization of the National Agricultural Market (NAM) e-platform, with 12 states already on board, is expected to significantly strengthen the linkages by reducing intermediaries between food producers and food processors, and making procurement significantly faster and more transparent.
Permission of 100 per cent FDI under the FIPB route in marketing of food products produced and manufactured in India is expected to help foreign multi-brand retailers who can procure food products made in India and market it by setting up stores. In addition, this is also expected to help generate investments in the downstream agri-food supply chain and generate employment in this sector.
There has been a significant thrust on improving the cold chain infrastructure, with services provided by the National Centre for Cold Chain Development now exempted from service tax, as well as customs duty. The extension of concessions in customs duty for cold storage to cold chain including pre-cooling units, pack houses, sorting and grading lines and ripening chambers is expected to benefit the cold chain industry. Reduction of basic customs duty for refrigerated containers from 10 per cent to 5 per cent, and excise duty from 12.5 per cent to 6 per cent will be an added advantage to cold chain players.
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