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Budget 2019-20: Rise in disposable income, farm packages to boost retail sector

  • Highlights

  • Interim budget 2019-20 targets the middle class and farmers

  • Higher disposable income to drive consumption

  • Interest subventions and farmers package could boost rural consumption

  • Allocation of Rs. 60,000 crore through MNREGA for FY20

The interim budget of FY19-20 announced a slew of populist measures that are likely to benefit the retail and FMCG sector. An important one among these is the tax rebate for those with income up to Rs. 5 lakhs. It is likely to bring a spurt in the disposable income. This in turn, spells good news for the retail and FMCG sector. The full budget after the election will confirm these changes. Measures announced in the interim budget can be reversed by the new Finance Minister after elections in May 2016. Since they are people-friendly, these measures may not be reversed even if a new finance minister from the opposition parties takes over. If you are selling goods and services to the retail and consumer sector, read on.

Targeting the middle class

Higher disposable income in the hands of the salaried class with tax rebates, will lead to higher consumption. This in turn will boost the sales of retail firms. India’s retail market has been riding high on the back of increased digital access of the middle class. Enhanced income and digital connectivity has in turn boosted the e-commerce market in India, that is touted as one of the fasted growing markets in the world. With retailers gaining access to tier II and tier III cities through digital channels, e-commerce is expected to grab up to 7% of the total retail market by 2021.

Boost to rural consumption

Apart from tax rebates, the government’s thrust on the farm sector through interest subventions and farmers package are likely to boost rural consumption.

The announcements made for the farm sector were as follows.

- Relief package of Rs. 75,000 crore under the new PM Kissan Samman Nidhi for distressed farmers whose incomes have stagnated.
- This package includes an income support scheme where the Government will transfer a sum of Rs. 6000 per year to farmers who own up to 2 hectares of land.
- Interest subvention of 2% to animal husbandry and fisheries sector that will boost this segment of agri-income
- Allocation of Rs. 60,000 crore through MNREGA for FY20, with the assurance of further allocation as necessary.

If implemented in a time bound manner these measures will uplift rural consumption considerably. The surge in rural sales has been the largest contributor to the growth of FMCG business in India. With 65% of Indians residing in villages and small towns, retailers will be excited about the opportunities presented in the consumption oriented interim budget.


 

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