Rural consumption gets a boost

Rural consumption gets a boost

Food-based FMCG firms also likely to gain.

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Rajat Wahi, Partner and Head of Consumer Markets, KPMG in IndiaRajat Wahi, Partner and Head of Consumer Markets, KPMG in India
Rajat Wahi
  • Mar 7, 2016,
  • Updated Mar 15, 2016 10:39 AM IST

The Union Budget for 2016/17 is a pro-agriculture, pro-rural budget. The finance minister has highlighted agriculture and rural sectors as two of the nine pillars of this year's Union Budget. The provisions for this year's Budget are expected to revive rural consumption, which has been subdued for the past two years primarily due to poor monsoon and untimely rains, and which has had a detrimental effect on consumption.

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The move to create a unified agricultural market e-platform will benefit  food-based FMCG companies, as this is expected to make procurement processes easier and more transparent compared to the APMC route.

In addition, the permission for 100 per cent FDI in marketing of food products as well as allowing foreign multibrand retailers to set up food-only retail stores is expected to bring in more investments into the food processing sector, especially the downstream supply chain.

With almost Rs 2,18,000 crore allocated for roads and railways, physical linkages are expected to improve significantly, which will help expand distribution across India, especially in rural markets, and reduce transit losses by improving connectivity.

There were no significant announcements on FDI in retail, which was expected considering that the government in November 2015 had announced significant changes to the FDI policy.

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The additional excise duty on unmanufactured tobacco and cigarettes is expected to negatively impact the organised tobacco industry further.

The Union Budget for 2016/17 is a pro-agriculture, pro-rural budget. The finance minister has highlighted agriculture and rural sectors as two of the nine pillars of this year's Union Budget. The provisions for this year's Budget are expected to revive rural consumption, which has been subdued for the past two years primarily due to poor monsoon and untimely rains, and which has had a detrimental effect on consumption.

Advertisement

The move to create a unified agricultural market e-platform will benefit  food-based FMCG companies, as this is expected to make procurement processes easier and more transparent compared to the APMC route.

In addition, the permission for 100 per cent FDI in marketing of food products as well as allowing foreign multibrand retailers to set up food-only retail stores is expected to bring in more investments into the food processing sector, especially the downstream supply chain.

With almost Rs 2,18,000 crore allocated for roads and railways, physical linkages are expected to improve significantly, which will help expand distribution across India, especially in rural markets, and reduce transit losses by improving connectivity.

There were no significant announcements on FDI in retail, which was expected considering that the government in November 2015 had announced significant changes to the FDI policy.

Advertisement

The additional excise duty on unmanufactured tobacco and cigarettes is expected to negatively impact the organised tobacco industry further.

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