Budget 2024: Higher disposable income to boost consumption

Budget 2024 has brought several promising initiatives and policies that are poised to significantly impact the Fast-Moving Consumer Goods (FMCG) sector. It aims to encourage consumption, especially in rural areas, while also addressing urban demand through strategic measures. By focusing on increasing disposable income and stimulating economic activity, the Budget’s measures are set to reshape consumption patterns and drive growth within the FMCG sector.

Boosting disposable income and consumer spending theme of the budget this year is an increase in disposable income, achieved through revisions in tax regulations. Standard deduction for the new tax regime has been raised from ₹50,000 to ₹75,000, coupled with revised tax slabs that offer reduced tax rates for income up to ₹15 lakh. This strategic adjustment is designed to put more money in the hands of consumers, thereby encouraging increased spending on a wide range of goods and services, including FMCG products.

The government’s approach aims to shift consumer behaviour from savings to spending. By enhancing disposable income and revising tax brackets, the budget is expected to stimulate consumer expenditure. As a result, the FMCG sector is likely to see a boost in demand, driven by consumers' increased purchasing power and willingness to spend.

Incentivising Consumption Through Tax Benefits

The budget’s focus on incentivising the new tax regime, with higher deductions for employer contributions to NPS accounts (increased from 10% to 14%), underscores a deliberate push towards greater consumer spending. This move is expected to influence consumer behaviour, making spending more attractive compared to saving. The anticipated increase in disposable income is poised to drive higher consumption in the FMCG sector, as consumers are likely to allocate a portion of their increased earnings towards everyday goods and services.

Employment and Economic Stimulus

Another significant aspect of the budget is its emphasis on job creation and infrastructure development. The introduction of a new internship scheme providing ₹5,000 per month, along with a one-time direct benefit transfer of ₹15,000 to employees registered with EPFO, is set to boost employment and economic stability. This injection of financial support is likely to enhance consumer confidence and spending capacity.

Furthermore, the budget introduces measures to support employers, including a provision for companies to claim part of the internship payments from their CSR funds. This initiative is designed to incentivise companies to hire new recruits, thereby boosting employment. Additionally, the government’s commitment to subsidising EPFO contributions for employees is expected to further support job creation and stability.

Urban Housing and Rural Infrastructure

The budget also focuses on urban housing and rural infrastructure, areas crucial for generating additional demand and economic growth. This investment will not only create jobs but also stimulate demand for various goods and services, including those in the FMCG sector.

In rural areas, the budget’s emphasis on infrastructure development and agricultural initiatives aims to bolster economic activity and improve living standards. Strengthening rural infrastructure and enhancing agricultural productivity will contribute to increased consumer spending power in these areas, benefiting the FMCG sector through higher demand.

Focus on Pulses & Oil Seeds

The budget highlights significant initiatives aimed at achieving self-sufficiency in pulses and oil seeds. The government plans to enhance the production, storage, and marketing of essential commodities such as mustard, groundnut, sesame, soybean, and sunflower. These measures are expected to stabilise prices and reduce volatility in the agricultural sector, which can impact FMCG product costs.

In the next two years, the government will engage one crore farmers into natural farming, supported by certification and branding efforts. This initiative will be carried out through scientific institutions and Gram Panchayats, with the establishment of 10,000 bio-input resource centres to support this transition. These measures are anticipated to enhance the quality and sustainability of agricultural produce, thereby benefiting the FMCG sector through more stable supply chains and reduced input costs.

Transforming Agricultural R&D

The budget underscores the importance of transforming agricultural research to enhance productivity and develop climate-resilient varieties. A comprehensive review of the agricultural research setup will focus on addressing productivity challenges and adapting to climate change. Funding will be provided in challenge mode, including contributions from the private sector and domain experts. This transformation aims to improve crop yields and stability, which is crucial for maintaining a steady supply of raw materials for FMCG products.

Alignment with Broader Budget Priorities

The budget aligns with the broader priorities outlined in the interim budget, focusing on productivity and resilience in agriculture, employment and skilling, and inclusive human resource development. The emphasis on these areas reflects a strategic approach to generating ample opportunities and fostering economic growth. The introduction of 109 high-yielding, climate-resilient seed varieties is expected to mitigate production volatility and stabilise prices, which will have a positive impact on the FMCG sector by ensuring a reliable supply of agricultural inputs.

Impact on FMCG Consumption Patterns

The recent budget’s focus on boosting disposable income, incentivising consumption, and supporting job creation provides a robust framework for growth in the FMCG sector. Consumers are likely to spend more on a variety of FMCG products, from essential groceries to discretionary items, driven by their enhanced purchasing power. The budget’s measures are expected to create a favourable environment for growth in the FMCG sector, as increased consumer spending translates into higher demand for goods and services. As consumers benefit from increased financial flexibility and a more stable supply chain, the FMCG sector can anticipate a period of vibrant growth and development.

(Mayank Shah is vice-president, Parle Products)