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Strengthening The Rural Footprint

This Budget falls short of meeting the industry’s expectation of steps and fiscal stimulus to help abate the agrarian crisis that the country is witnessing today.

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Finance Minister Nirmala Sitharaman’s maiden Union Budget 2019-20 with its clear focus on ‘Gaon, Gareeb aur Kisaan’, is in line with the NDA government’s stated intent of keeping the long-term interests of rural India in mind. However, this Budget falls short of meeting the industry’s expectation of steps and fiscal stimulus to help abate the agrarian crisis that the country is witnessing today. Over the past few years, the FMCG industry had been witnessing rural demand growing ahead of urban India. While it still continues to grow ahead of urban, the agrarian crisis had dented the pace of growth and the industry was looking forward to some fiscal stimulus bringing back that growth. Those big, bold steps are missing.

The Finance Minister has, however, announced a series of long-term initiatives that would help improve overall consumer sentiments in the hinterland. From the proposal to go back to zero-budget farming and helping farmers get a fair price for their produce, to ensuring all rural households get access to safe and adequate water by 2024; from the higher spends on rural infrastructure through road construction and upgradation of rural roads, to broad-basing the Ujjwala and Saubhagya schemes; these proposals would definitely put more disposable income in the pockets of the urban consuming class. But, these may not be enough to spur overall rural demand. The decision to hike duty on petrol and diesel is also an area of concern as it may fuel inflation.These, coupled with the fast pace of road construction and upgradation of over 1.25 lakh km of rural roads over the next five years, would significantly improve rural connectivity and give companies easier access to rural markets. These are certainly steps in the right direction and will go a long way in improving the standards of living in the hinterland. Dabur is already investing in strengthening its rural footprint by reaching out to 50,000 villages by the end of this financial year, up from 40,000 in March 2019.

We will further enhance this to cover 60,000 villages by the end of 2020-21. The urban consuming class too has some reason to cheer in the form of the Budget proposal to increase by Rs 1.50 lakh, the deduction that can be claimed for interest paid on home loans taken for affordable housing. This would translate to a benefit of nearly Rs seven lakh over a 15-year period for the consuming class and will put more money in their pockets, thereby fuelling demand for consumer products. In addition, the full tax rebate for individuals with net taxable income up to Rs five lakh and extension of pension benefits to three crore retail traders under the Pradhan Mantri Karam Yogi Maan Dhan Yojana are other positives in this year’s Union Budget.

With this Budget, the government has also taken some steps to further ease the ongoing stress on non-banking finance companies. The one-time six-month partial guarantee of Rs one lakh crore to state-run banks for purchasing consolidated pooled assets of financially-sound NBFCs comes on the heels of the recent Repo rate increase. This would help further ease the liquidity situation and lend a helping hand to the trading community, shopkeepers and retail traders.

This Budget surely gives a hint of the government’s intent but falls short of laying down the blueprint for creating an enabling framework that would promote growth. Overall, this is a mixed Budget that has sought to create additional areas of spending without increasing the fiscal deficit.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Union budget 2019-20

Mohit Malhotra

The author is CEO, Dabur India

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