Makers of fast moving consumer goods are among those most elated by the budget, even though there is little in it for them upfront. It is finance minister Pranab Mukherjee's increased spending on rural development schemes, along with tax concessions for salaried individuals, that has excited them, as it is sure to lead to an increase in demand.
The removal of the fringe benefit tax and the commodities transaction tax will also benefit the FMCG sector. However as in other industries, there is some concern about the increase in minimum alternative tax (MAT), which would erode much of the benefit accrued from removal of FBT.
The government has increased the budget allocation for the national rural employment guarantee scheme by as much as 144 per cent to Rs39,100 crore. This, along with more money in the hands of the middle class, would propel consumption spending and help volume growth for FMCG companies.
Goods like soaps, detergents, shampoos and cosmetics are expected to see an almost immediate boost in demand.
Inexplicably, however, oral hygiene has been made more expensive with the doubling of the duty on toothbrushes from 4 per cent to 8 per cent! Does the government want a nation with bad teeth? Toothbrushes are already overpriced in India, with many households continuing to use them long after they should have been discarded.
While almost universally appreciating the budget for its increased rural outlay, the manufacturers are now eagerly awaiting the comprehensive goods and services tax which the government aims to introduce. While it is not clear how existing duties would be eventually merged with GST, it is widely expected to bring FMCG prices down.