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Feb-18-2019
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Consumption Rush: Higher Discretionary Spends To Benefit These sectors After Interim Budget



Consumption based stocks are set to see a good time post the Interim Budget 2019-20. Following key pointers make it clear that the growth oriented budget is very much likely to boost domestic demand.

More income support for farmers: The Finance Minister (FM) offered direct income support for 12 crore small and marginal farmers. The Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) is set to provide Rs 6,000 per year to farmer families, having cultivable land upto 2 hectares. For this, the FM announced an outlay of Rs 75,000 crore for the FY 2019-20 and Rs 20,000 crore for FY next fiscal. The FM also announced 2% interest subvention to farmers pursuing animal husbandry and fisheries. In case of timely repayment of loan, the farmers will get an additional 3% interest subvention as well.

More spending capacity for unorganized labourers: The FM provided pension benefits to at least 10 crore labourers and workers in the unorganized sector through a new scheme called 'Pradhan Mantri Shram-Yogi Maandhan'. The workers in the unorganised sector earning up to Rs 15,000 a month will receive a monthly pension of up to Rs 3,000 after the age of 60.

More disposable income following tax rebates: Taxpayers with taxable income up to Rs 5 lakhs will not be required to pay any income tax now. The FM said that persons having gross income up to Rs 6.50 lakhs will not be required to pay tax if they make investments in specified savings schemes. Thus tax benefit of Rs 18,500 crore will be provided to around 3 crore middle class and small taxpayers. The standard deduction is also raised from Rs 40,000 to Rs 50,000, providing extra tax benefit of Rs 4,700 crore to more than 3 crore individuals. TDS limit on interest earned on bank/post office deposits is also raised from Rs 10,000 to Rs 40,000.

More purchasing power following tepid inflation: The FM further noted that the government has been successful in bringing down average inflation to 4.6% over last five years, which is lower than the inflation during the tenure of any other Government. The average rate of inflation during previous five years 2009-2014 was 10.1%. Such a sustained drop in inflation is also likely to augur well for the household consumption expenditure in the country.

Now, here is a look at the consumption focused sectors which would highly benefit from the announcements in the Interim Budget.

FMCG: The Fast Moving Consumer Goods (FMCG) players are set to be the prime beneficiary following the income boost given in the budget. It is clear that the government wants to help farmers and spur consumer spending among middle-class segment. The first round impact of this increased spending would be felt in uptick in demand for branded consumer products.Market research firm Nielsen India expects FMCG sector in the country to grow around 11-12% in calendar year 2019 following 13.8% spurt in 2018. However, following the budget, it is likely that the sector might even surpass its growth figures of last year and would bring about a massive revenue generation for companies in this sector.

Consumer Durables: Rising rural and urban incomes are set to trigger a rush for consumer durables. The FM noted that by March, 2019, all households in the country will be provided with electricity connection. Purchases of items like LED TV, ACs, Washing Machines and other consumer durables is set to witness a rise as upward mobility gains strength. The consumer durables market in India is estimated to have reached Rs 1 lakh crore in 2017. The consumer durables/light electricals industry is expected to reach Rs 1.5 lakh crore by 2020, according to a study from ICSI.

Real Estate: Apart from schemes aimed at boosting the incomes directly, the FM also provided plenty of relief on the tax front. This lower tax incident can help is boosting the consumer sentiments in general. Interim Budget also saw positive offering for the sector such as extension of sunset clause u/s 80IBA by one more year and waiver from tax on notional rent on unsold inventory for one more year. The Finance Minister also noted that the Government wants the GST burden on home buyers to be reduced and accordingly the GST Council was moved to appoint a Group of Ministers to examine and make recommendations in this regard at the earliest. Businesses comprising over 90% of GST payers will be allowed to file quarterly return.

Automobiles: Given the recent slackness in the local auto sector, the budget could be termed as a largely supportive one for the industry. In FY18, auto industry in India surpassed Germany to become the fourth leading market in the world. The overall vehicle sales grew by 9.2% with total sales of 4.02 million units in FY18, which includes passenger vehicles as well as commercial vehicles. However, in current fiscal, there is a visible stress on the local sales following a spurt in fuel prices earlier in the year and tepid growth momentum has been seen in passenger as well as commercial vehicles.The increase in disposable income in the hands of 3 crore households can boost the demand for two-wheelers. The government's decision to allocate Rs 60,000 crore for MNREGA and another Rs 19,000 for construction of rural roads under Gram SadakYojana, coupled with the modest farm support scheme offering income support for marginal farmers are also ensuring that the rural incomes stay supported.The sustained focus on MSME segment in the interim budget can offer some support for light commercial vehicles demand.

Retail: The consumption rush is expected to have a direct influence on the retail sector in the country. The sector is already in a sweet spot. India’s organised retail sector is expected to add about 39 million sq ft of space in four years to the end of 2022, of which 71% will be in metros and tier-I cities, according to a latest update from Anarock Property Consultants. Investments in the domestic retail sector doubled in 2018 to Rs 1300 crore. Entry and expansion of global players and developmental activities in tier II and III cities will see organized retail growing to $209 billion by 2020. This expansion clubbed with the high focus on consumption led growth should set the stage up for vibrant times for the retail sector.

Conclusion

The FM noted that India is poised to become a Five Trillion Dollar Economy in the next five years and aspire to become a Ten Trillion Dollar Economy in the next 8 years. The new schemes aimed at directly enhancing income support, sharp increase in tax benefits and higher social sector allocation is likely to work well for the economy. The income levels are already on the rise and would be buoyed even more following the proposals in the budget. The recent government estimates suggest that the per Capita Income in real terms (at 2011-12 prices) during 2018-19 is likely to be at Rs 91921 per annum as compared to Rs 86,668 for  the  year 2017-18, marking a rise of 6.1% as compared to 5.4% in the previous year.

Blog by – Mr. Dhruv Ajmera

Also Read:  Six Factors Which Make Mutual Funds Attractive For Retail Investors
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