Budget 2022: Stimulus-Hungry Consumer Firms Get A Capex Feast

Budget 2022 lacked direct support for consumption but the government's capex boost will have a multiplier impact on the growth for Asia's third-largest economy, according to India Inc.

Higher investments in the core sectors will lead to greater demand across industries, push up the capacity utilisation rates and consequential private capex, create more jobs and through higher incomes reinforce greater consumption and demand, Sanjiv Mehta, chairman and managing director at Hindustan Unilever Ltd., said. "We now look forward to the implementation of the same (the announcements made) by the central government in close coordination with the states.”

Finance Minister Nirmala Sitharaman increased capex spending target by more than 35% for FY23 even as allocations to schemes like rural jobs guarantee and subsidies have been reduced. And the budget pegs the fiscal deficit for the next fiscal at 6.4%, while factoring in higher-than-expected borrowings. Sitharaman didn't propose any changes in personal income tax rates for the next fiscal.

“The budget hasn't met the general expectations of being a short-term consumption booster,” said Mohit Malhotra, chief executive officer at Dabur India Ltd. There weren't any big reliefs for the salaried and middle class by way of tax cuts but “the absence of any big negatives is a big positive in itself", he said.

Mayank Shah, senior category head at Parle Products Pvt., said putting money in the hands of consumers, either by tax cuts or increasing the slabs or by probably increasing the standard deduction limit, was something that the industry expected. "...But not much has been done there."

Kumar Rajagopalan, chief executive officer at Retailers Association of India, too, said that the industry "expected some relief for individual taxpayers to propel consumption, which is missing from the budget".

The government, however, has "done a lot" on job creation, Shah said citing announcements to boost infrastructure under PM Gati Shakti plan. "A 20,000-crore boost in transportation infrastructure will definitely help in terms of job creation going forward."

The finance minister also allocated Rs 2.37 lakh crore for minimum support price payout to wheat and paddy farmers.

Putting money in the hands of rural consumers by increased MSP is going to have an impact on the inflation as it increases the cost of agri products, primary inputs in food processing, Shah said.

"The current challenge ahead of most FMCG companies, which is managing inflation, probably would be aggravated. I consider it (the proposal) to be neutral," he said. "Probably placing this money in the hands of consumers through MGNREGA or DBT would have ensured demand to remain robust."

Malhotra of Dabur, however, said direct MSP payments, financial support for taking up agro-forestry, and promoting chemical-free natural farming, besides the thrust on financial inclusion by bringing the entire 1.5 lakh post offices into the core banking system, are big positives for rural India.

“The higher MSP allocation would go a long way in helping drive consumption of FMCG products in the hinterland. This would be highly beneficial for companies with a strong rural footprint and would help drive growth for the industry,” he said.

And emphasis on capex, according to Abhijit Roy, managing director at Berger Paints Ltd., augurs well for the growth of the economy and job creation in the medium to long term.