The change

Measures such as rationalising of Minimum Support Price (MSP) for crops, higher farm credit and allocations to improve rural livelihood are expected to trigger consumption demand in rural areas.

New employees under the Employees Provident Fund (EPF) scheme in all sectors will take home more as the government will contribute 12 per cent of their wages to the scheme for the first three years. Pensioners will be left with higher disposable incomes..

However, the salaried class has been left disappointed.

The introduction of long-term capital gains tax (LTCG) on equities and the hike in customs duties for a host of consumption items such as fruit juices, imitation jewellery, footwear, watches and clocks, furniture and toys could make these expensive, are a dampener

The background

As per the Economic Survey released a few days ago, in the six years between 2011-12 and 2016- 17, the share of Private Final Consumption Expenditure (PFCE) averaged 57.5 per cent in total GDP.

But there have been headwinds. As per the first advance estimates of 2017-18, the contribution of PFCE to GDP is estimated to be lower at 54.3 per cent, much lower than the average citied above.

In fiscal year 2017-18, consumption met with stumbling blocks despite tailwinds from benign borrowing rates. The GST transition and consequent de-stocking also affected demand in sectors such as FMCG, auto and consumer durables. Also, uneven monsoons and the crash in prices of agricultural products hurt rural India.

Growth in private expenditure took a hit in the first two quarters of 2017-18, over the same periods last year. PFCE growth stood at 6.8 per cent in the quarter ended June 2017 and 6.5 per cent in September 2017. Last fiscal, it had grown by 8.7 per cent.

The verdict

The results of the September and December 2017 quarters show that there is some recovery in demand after the GST slump. Better urban consumption has helped companies such as Maruti Suzuki. Premium products of FMCG companies such as Hindustan Unilever, Dabur and Marico, as well as FMCG majors with an urban tilt, such as Godrej Consumer, have also shown good volume growth. Higher disposable income in some sections of the urban population could keep this trend going.

Thanks to the budget’s moves for rural India, FMCG companies, such as Hindustan Unilever, Dabur, Colgate, Jyothy Labs and Bajaj Corp, which have a higher rural tilt in their revenues, will benefit. Ditto with two-wheeler manufacturer Hero MotoCorp and tractor manufacturers such as Mahindra and Mahindra and Escorts.