The Union Budget 2023-24 has surely brought good news for the average middle-class Indian. The income tax exemption limit has been increased to ₹3 lakh, while the income limit for a rebate in income tax has been increased from ₹5 lakh to ₹7 lakh under the new regime. Finance Minister Nirmala Sitharaman, in her Budget speech, said that around ₹33,000 crore would now be in the hands of people. Will more disposable income spur consumption? Will the Budget announcements result in higher volume growth for the consumer goods companies, (which have been rather lacklustre in the past year, with growth being either stagnant or negative for some companies)?

Not necessarily. Industry experts believe that the increase in disposable income is negligible for it to have a substantial rub-off on consumption. “One can’t attribute consumption growth to the Budget,” says Arvind Singhal, chairman, Technopak Advisors. “Out of ₹33,000 crore that will be in the hands of the people, all of it will not go towards consumption, some of it will probably go towards saving. The actual money which will be available in the hands of consumers may not be more than ₹20,000 crore, which is way too less to impact consumption.”

Former Dabur COO, currently Venture Partner, Fireside Ventures, Kannan Sitaram agrees. He says that ₹33,000 crore of disposable income in the ₹3-trillion economy is a too small number to generate demand. While an immediate rub-off on demand is ruled out, what is more, likely is a growth in demand-led consumption in the mid to long term.

Rajat Wahi, Partner, Deloitte India, calls the Budget ‘development-led’. “Whether it is increased capital investment outlay or agri-sector credit, all the money will go into people’s hands indirectly and hence boost consumption. In another quarter or two the impact of these initiatives would kick in and the money would start flowing into people’s hands,” explains Wahi.

The Finance Minister announced an increase in capital investment outlay by 33.4% to ₹10 lakh. There has also been a capital outlay of ₹2.4 lakh crore for the Railways. She also announced 100 transport infrastructure projects for end-to-end connectivity for ports, coal, steel and fertiliser projects. These initiatives would lead to employment generation and therefore increase in consumption. “Announcements that investment into capex would increase by 33%, naturally triggers a positive spiral because that kind of investment into infrastructure will put money into the hands of people,” explains Manish Sharma, chairman, Panasonic Life Solutions, India and South Asia.

Sharma says that an increase in consumption would come from higher disposable income and not be price-led. The Budget has announced the reduction of customs duty on several consumer durable spare parts. “I am not sure if prices of television will really go down because the impact of duty reduction of open cell components that has happened is small. The potential impact on cost won’t be more than 0.3%-0.5%,” Sharma explains.

Volume growth has been a reason for worry for all consumer product companies. But Budget 2023 is unlikely to spur volume growth at least in the short term. “Volume growth will still be under pressure as consumers are suffering from high inflation. The economy is beginning to find some momentum, but it is not completely out of the woods,” says Technopak’s Singhal.

“Volume growth can happen in a significant way only when your real GDP numbers touch 7%-8% and it is steady at that rate. That’s when your discretionary spending will increase. Having said that, volume growth won’t be stagnant or negative. We should be happy even if it is a modest 4%-5% volume growth,” Singhal further explains. He expects consumption as well as volume growth to be in tandem with GDP growth. The forecast for real GDP growth in the next fiscal is in the region of 6%.

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