The Budget has several positives for the rural sector. The 22% increase in agricultural credit and continued interest rate subvention on farm loans will help farmers tide over the liquidity crunch due to poor monsoons in several parts of India.
Similarly, increase in allocations for several rural schemes will help in creating rural capacity. For example, the substantial increase in allocation to the rural roads scheme (PMGSY) will improve linkages with urban centres and help farmers realise better incomes.
No change has been proposed in the rates of excise duty and service tax. This will ensure that taxes do not have a dampening effect on the demand for consumer goods and services. The `100 crore investment allowance would help expedite planned capex investments. However, the higher corporate taxes rates are downsides in this Budget.
The companies serving the high income urban consumer do not have much to cheer from this Budget. However, for consumer sector companies serving the mass market urban consumer, the Budget presents a small upside opportunity driven by the tax rebate.
Rural incomes will continue to benefit from the planned investments. However the impact can only be felt with a lag effect. Thus, rural India will present a significant opportunity in the second half of the financial year 2013-14.
Discretionary spend categories of consumer durables and higher value FMCG products will continue to witness current demand conditions for the next couple of quarters until the anticipated turnaround. Non-discretionary categories like staples will continue to do better. In summary, the Budget is a mixed bag for consumer sector companies.
The writer is practice head, consumer & retail, Tata Strategic Management Group