In his Union Budget presentation earlier this month, India’s Union Finance Minister (FM) Pranab Mukherjee underscored the urgency of reviving growth, by identifying that the country’s immediate economic challenge is to return to nine per cent GDP growth, failure of which will cause considerable loss of revenue for the government and will affect the pace of job creation in certain sectors of the economy and the investment sentiments, all features of the domestic economy in the last two quarters of year 2008-09.
In an attempt to ensure balanced and equitable development, Mukherjee has widely increased the allocations to social development schemes, which would play a vital role in boosting rural development and demand.
In the context of the nation’s food security, the declining response of agricultural productivity to increased fertiliser usage in the country is a matter of concern. And the decision to move from a product-based fertiliser subsidy mechanism to a nutrient-based one and the move towards a market pricing regime for petroleum products should increase India’s economic efficiency. “To ensure balanced application of fertilisers, the Government intends to move towards a nutrient based subsidy regime instead of the current product pricing regime. It will lead to availability of innovative fertiliser products in the market at reasonable prices. This unshackling of the fertiliser manufacturing sector is expected to attract fresh investments in this sector. In due course it is also intended to move to a system of direct transfer of subsidy to the farmers,” he announced.
Assuming that the FM’s rural wishlist finds realisation, will his announcements succeed in spurring demand from India’s non-urban markets? If yes, how long will it be before measurable gains start to kick in?
Responding to our weekly opinion poll question, Union Budget 2009-10 will boost rural consumption in — a) Short term, b) Medium term c) Long term on the website, 53.57% of the respondents opted for short term, 35.71% for medium term, and 10.72% polled for long term.
Clearly, the majority of visitors to our site expect the FM’s announcements to result in rural prosperity fairly rapidly.
The government has given more emphasis on domestic consumption so that rural Indians may one day be turned into valuable consumers. “With more money in the hands of rural Indians, the opportunity for rural retail is brighter than ever. All such products and services that improve productivity and/ or enhance rural incomes will sell well. These could be agri inputs, lighting solutions, education products, mobile phones, transportation, health services etc. With increased incomes, products that improve quality of life – branded FMCG and household appliances – also sell well,” noted S Sivakumar, Chief Executive of Agri Businesses, ITC Ltd.
FM remained stuck to the UPA government’s ‘Inclusive Growth’ theme by continuing its focus on the Aam Aadmi, but has done little to cheer Corporate India and FMCG industry in particular. While on the one hand the government has left untouched key matters like corporate tax, it has, on the other hand, hiked Minimum Alternate Tax (MAT) which would lead to higher tax outgo and erode the benefits accrued from the removal of Fringe Benefit Tax (FBT). “The government’s move to reinforce its intent on introducing national-level Goods and Services Tax (GST) by April 1, 2010 is a welcome step, but there’s still no clarity on the road forward. While Mukherjee has said that consensus is emerging among the various stakeholders, what’s missing is clarity on how various duties would be merged with GST, and a clear schedule of dates for its smooth implementation,” said Amit Burman, Vice Chairman, Dabur India Ltd.
Commenting on the same Viney Singh, managing director of Max Hypermarkets India Pvt. Limited says, “The FM’s announcement towards inclusive development — PMAGY, NREGA, SGSY– in the 2009-10 budget should definitely boost rural consumption.”
“The extent of the boost will largely be a function of the efficiency and timeliness with which these schemes are implemented. The past record on these counts has been quite dismal,” he further adds.
“The success of the monsoons will be another important influencer of rural consumption. The progress of the monsoons has so far been poor, but there is still some time wherein a recovery is possible.”
The Government has announced a series of measures — interest subvention on farm loans, increase in allocation for NREGS by 144%, increase in target for agricultural flow, Rs 20 billion earmarked for rural housing scheme in NHS, allocation under the Indira Awas Yojana increased by 63% and under the RGGVY increased by 27% — to increase rural income.
Referring to these announcements, Thomas Varghese, CEO, Aditya Birla Retail says, “These measures will result in increased money supply in rural areas as well as sectoral growth and hence boost rural consumption in the short to medium term. Increased credit flow is also likely to lead to stabilisation of rural demand, which will also result in more stable consumption patterns.”
“The government has ensured more liquid cash and rural India is one of the particular areas where I would prefer to tack my business in coming days. So, I believe that the current budget will boost the rural sector which will bring remarkable change in the long term,” concludes Ambeek Khemka, Group President, Vishal Retail.
