The Union Budget for 2016/17 is a pro-agriculture, pro-rural 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 which has had a detrimental effect on consumption.
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 compared to the APMC route.
In addition, the permission for 100 per cent FDI in marketing of food products as well as allowing foreign multibrand retailers to set up food-only retail stores is expected to bring in more investments into the food processing sector, especially the downstream supply chain.
With almost Rs 2,18,000 crore allocated for roads and railways, physical linkages are expected to improve significantly, which will help expand distribution across India, especially in rural markets, and 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 in 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 jewellery prices. 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 on rubber soles, are 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.
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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 the retail sector is one of the largest employers in the country, the government has proposed permitting the opening of retail shops for all seven days of the week, and floating of a model shops and establishment Bill. If adopted by the states, it is expected to benefit small retailers, generate more employment in the sector and create uniformity in retail operations across the country.
Written by Rajat Wahi, Partner and Head of Consumer Markets, KPMG in India
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