The direction on reducing the corporate tax rates from 30 per cent to 25 per cent will probably help the FMCG sector to maintain the prices, thereby accelerating the conversion. Although the service tax rate has been increased from 12.36 per cent to 14 per cent, which might be slightly inflationary till the implementation of GST. The Budget is taking steps in realigning the current indirect tax structure for seamless integration with the GST tax structure. Overall, this is a good endeavour at the creation of an ecosystem that enables ease of doing business.
India is still a very underpenetrated market seen from the FMCG lenses as compared to a lot of fast-growing emerging markets. The government's long-term agenda of providing basic amenities of better infrastructure and social security to the common man, especially rural India, augurs well for the FMCG sector. Also, there is a clear intent and a game plan to ensure that the intended subsidy benefits reach the poor through Jan Dhan initiative. This will improve disposable income in the hands of the masses and create an opportunity for FMCG companies to drive penetration of branded and better quality products. Improvement in railway and road infrastructure will help reduce logistics costs of FMCG companies, thereby shoring up their bottom line.
Some key announcements, such as universal Social Security Scheme and allied income tax benefits are aimed at uplifting the masses. The focus on improving predictability and transparency is quite discernible. The Budget is wide-ranging, yet balanced, given the emphasis on the long-term view, which is very reassuring. This is definitely an inimitable approach towards managing development and finances for India.
The Budget aims to create a favourable agenda for a strong association between the Centre and the states. There is also an increased focus on agriculture and manufacturing for providing an impetus to real growth of the economy. This Budget will enable urban consumption to increase, while opening doors for a sustained rural consumption in the long-term. With an overall focus on broad-based growth, the FMCG industry will benefit over the medium-term, although the impact is a bit of a neutral to slightly positive in the immediate-term unless consumption goes up with the execution of the key initiatives the Budget has set out to do.
The author is Managing Director & CEO, Marico Ltd