Tax reduction, rural development to give new boost to FMCG Industry

The sudden job losses, migration of laborers and the fear of stepping out due to the coronavirus pandemic have affected people’s consumption pattern majorly in 2020.  But, the announcement of certain favaourable measures including reduction of tax personal taxes and a push to rural development in the Union has given a facelift to the bakery industry.

Finance Minister announced an increase in rural infrastructure development by 34% to Rs 40,000 crore and doubling of micro-irrigation corpus to Rs 10,000 crore among other measures. The Union Budget attempted to activate multiple switches like rural, infrastructure, entrepreneurship and financial sectors to stimulate growth. It remains to be seen which of these will fire and to what extent. We are optimistic about the government’s rural agenda and hope that it buoys consumer demand for the sector.

Industry experts feel that the special mention of rural development facilities will fuel growth in the struggling rural economy, where FMCG growth has slowed down. The FMCG sector has been the fourth largest sector of the Indian economy. It is characterised by high turnover consumer packaged goods, i.e. goods that are produced, distributed, marketed and consumed within a short span of time.

Improved Rural Economy  

If we see the consumption pattern in India, most of the consumption happens in its rural parts. But, demand in the rural sector is directly proportional to the agriculture sector. If the agriculture sector is struggling the FMCG sector also comes at stake. Therefore, the announcement of the big amount on the development of irrigation will also put more money in the hands of rural consumers. Agriculture sector might also get some fillip to help associated workers earn more, and in turn, spend more.

Tax Reduction

The biggest positive outcome from this year’s budget would be the income-tax relief offered to lower income groups. The slashing income tax rates and rejigging income tax slabs to reduce total tax payable by individuals would definitely put more disposable income in the pockets of the consuming class, particularly the middle class, which may help push demand for consumer staples. The announcement will also reduce the tax burden on the middle class citizens and increase the taxpayer base in India.

It will additionally result in the rise of disposable income in the hands of consumers thereby augmenting consumption. Owing to the COVID-19 economic slowdown, consumers are skeptical to shell out their income on snacks and other segments. They are just spending on essential items. But the budget is surely going to change this mindset among the middle class and rural sector.

New Roads & Highway Projects

The announcement of the construction of new roads and highways by March next year in states like Kerala, Assam and West Bengal will be beneficial for the FMCG sector too who are planning to expand their reach in these states. Since the bakery industry mostly deals with perishable goods, the construction of these roads and highways will ensure that the products reach their customer on time and in edible condition.