Union Budget 2018-19: Put more money in consumer’s wallet

The implementation of goods and services tax (GST) has pretty much, taken care of most of the expectations by the Indian consumer sector from the upcoming budget. Players in the retail, fast moving consumer goods, e-commerce and consumer durables are now hoping the government to announce measures that will put more money into the hands of the consumers. This will act as a catalyst in propelling demand and consumption going forward.

Responding to a DNA Money query at the recently concluded third quarter results meet, Sanjiv Mehta, chief executive officer and managing director, Hindustan Unilever Ltd (HUL), is very clear on the consumer industry's expectations from the upcoming budget. “It's very simple for us. We need more money in the hands of the consumers. The government has done its bit by reducing GST rates, which is right for the long-term health of the consumer goods industry as well as the end consumers. That should certainly help (increase) demand for the goods. Most of our products are now at 18% and from our perspective, it has been a very good step reducing it from 28% certainly in categories like detergent powders, shampoos etc," said Mehta adding that the government has to balance between the compulsions of their collections and how much GST can they pass.

Additionally, the finance minister had earlier hinted that corporate tax rate should come down to 25%. While Mehta is not certain if the FM will implement it or not, if implemented, it will make India more competitive when it comes to corporate tax rate versus many other countries in the region.

“But what we would want from a consumer goods or FMCG industry point of view, the FMCG growth in many ways reflects the state of the economy and also contributes to the private consumption that fuels gross domestic product (GDP) growth rate. The per capita FMCG spend in the country currently stands at $29. If you look at some of the emerging countries like Indonesia, it is two times that number. In China the figure is four times, in the Philippines it's five times and Thailand is 10 times. Just think of it, how much headroom there exists for us to grow,” said Mehta.

However, all this requires not absolute GDP growth but inclusive growth so that more money gets passed on to the consumers. “If you look at rural and one of the reasons why growth there slowed down was the increase in the rural wages over the last three years where the average was just 5%. Prior to that for a couple of years it was 15%. So rural wages play a major role for rural demand because not many people in our rural hinterland are landowners, they are farm workers so it gives them more money to spend. So the virtuous cycle of growth, more investments, more jobs, more sources of livelihood, more money in the hands of the consumers, that's what propels FMCG,” said Mehta.

The consumer durables industry is seeking a reduction in GST rates for a host of their products in addition to policy measure that will benefit companies focusing on domestic manufacturing versus imports thus giving a boost to the Make in India programme. In December 2017, the government had hiked import duty on television sets, mobile phones, microwaves, digital cameras/ video recorders, water heaters, hairdressing instruments, LED lamps etc has been well-received by the industry.

Requesting not to be quoted, a top executive from a leading multinational consumer durables firm said, “The recent hike in the basic customs duty has made imports costlier. Similar steps need to be taken across other durables products to help domestic manufacturers reap their investments in the country,” said the executive.

Kamal Nandi, business head and executive vice president, Godrej Appliances, said, that consumer appliances, such as air conditioners, refrigerators, washing machines and others are no longer considered luxury items but necessities that improve and spur people productivity. “Such consumer appliances need to be made more affordable to the consumers and therefore be put in a lower tax bracket – from 28% to 18%. There should be further tax reductions on energy efficient products – 12% for five-star and four-star products, to increase the adoption of sustainable appliances by Indian consumers. There should also be incentives for manufacturers to produce energy-efficient products which will be in line with the government's focus on sustainability as well as its Make in India initiative, ” he said adding that the appliances industry is expecting the budget to bring in incentives to promote domestic manufacturing and increase consumers adoption of appliances.

Voicing expectations from the retailers in India, the Retailers Association of India (RAI) is seeking industry status for the retail sector and a host of other things including completely opening up foreign direct investment (FDI) for Indian-owned and managed businesses, stricter implementation of the Model Shops and Establishments Act, eliminating intermediaries between farmers and retailers, e-enabling small retailers and incentivising digital payments and, further simplification of GST among others.

Kumar Rajagopalan, chief executive officer, RAI, said, institutional corrections that needed to be done with respect to cash and taxation are all done. “India should be on a fast growth path, which should help towards consumption. We hope that the budget gives lots more in the hands of individual consumers for them to be able to go out there and buy. If consumption in India increases, it re-emphasises the democratic dividend that India has and this will further support the Make in India movement in the country.”

The online retail, e-commerce/ emarketplace firms are a happier lot as the roll-out of GST has ironed out a majority of their troubles. According to Hari Menon, co-founder and chief executive officer, bigbasket, the industry is happy with the way GST has been implemented and that players like bigbasket have accrued a lot of benefits.

“It has brought a definite relief from a key issue faced by the e-commerce segment that of cascading taxes, ensured seamless movement of goods across the country, and brought in efficiency and transparency in the manufacturing sector. The implementation of GST has helped us in effectively selling unique products of one state at same price across the nation. For most of the products, prices have come down. If the rates are lowered further, it would be great. The customers will benefit more. But beyond GST, I am not expecting any major reforms in this year’s budget from the business side,” said Menon.

However, K Vaitheeswaran, e-commerce pioneer and author of just-released book Failing to Succeed - The story of India's first e-commerce company, pointed to an existing issue that as per GST, e-commerce firms have to deduct 1% TCS (tax collected at source) from merchants and sellers. “The implementation of this is quite cumbersome and the government has provided temporary relief on this till April 2018. I feel thousands of small merchants may still not be ready for this and their cash flows will get impacted,” he said suggesting the government to postpone this by another year thereby giving merchants more time to get ready.

The food processing players are expecting an increased thrust on the industry. According to an ITC spokesperson, it can bring in large efficiencies in the agri value chains and is a critical step to achieving the vision of doubling farmer incomes. “The food processing sector, which is at the intersection of agriculture and industry, adds tremendous value to agricultural produce and has a multiplier effect of creating significant employment potential, enhancing farm incomes and combating agri-wastages,” said the company spokesperson.

WHAT THEY WANT

• The consumer durables industry is seeking a reduction in GST rates for a host of their products
   
• Retailers want ind status, opening up of FDI, eliminating intermediaries
   
• Food processing firms want measures that make agri value chains efficient