Charged up for growth!

Earlier this week, we watched two significant events with interest. In Hollywood, The King's Speech made its point by sweeping the Oscars. Closer home in Parliament, the Finance Minister's speech made its own point quite effectively. A very simple point too, if you read Pranab Mukherjee's Budget speech carefully enough. Rapid growth is India's key story, the Budget tells us, and this story must be protected.

Rapid Growth and Consumer Demand

The Minister's speech has painted a very positive picture of the future. The Indian economy will grow 9 per cent in 2012, said the Finance Minister. Coming on the back of an 8.6 per cent growth in fiscal year 2011, this makes India one of the fastest growing economies in the world, on course to overtaking China's growth rate soon. This is the most important takeaway from Budget 2011 for all marketers — we are in one of the largest and fastest growing countries, so go ahead and bet on growth.

Such year-on-year 9 per cent growth will multiply the number of affluent and middle-class families in India manyfold. When the consuming class grows so fast, marketers should only plan in one direction — to grow, and grow, and grow. Whether you are marketing noodles or cars or washing machines or wrist watches, this lesson is exactly the same. And it is doubly reassuring to note that several Budget proposals this year have contributed tangibly to this confident prognosis of future growth.

Fiscal Stimulus: a continued growth driver

First and foremost, to ensure continued rapid economic growth without any possible setback, this year's Budget has continued the fiscal stimulus provided by the Government two years ago. The standard rate of excise duty has been retained at 10 per cent, and not rolled back to the higher rates which prevailed in the pre-downturn period. This is excellent news for industries such as two-wheelers and cars, and a wide range of consumer durables. Even as marketers in these sectors grapple with increased input costs on account of commodity inflation, the retention of the fiscal stimulus will ensure that they can focus on volume growth without worrying about the need to constantly increase consumer prices which may have a dampening effect on demand.

GST roadmap: welcome news for growth

Even better news is the firm roadmap towards a single, nationwide GST (Goods and Services Tax) announced in this year's Budget speech. GST will be one of the biggest and most progressive growth drivers for all Indian marketers. By virtually transforming our country into a single seamless market, and by taking away the horrors of multiple cascading taxes, GST will simplify our lives, make India a less expensive place to do business in, and will therefore trigger a fresh wave of growth. It will also create a level playing field for organised brands, that currently face a very uneven battle against many “unethical” players in the unorganised sector — a tribe that actively evades statutory levies with impunity.

Of course, the Finance Minister's voyage towards implementing GST in April 2012 is fraught with many uncertainties, as a Constitutional amendment is essential to enable this change, and this requires wide-ranging political support. However, when the economic logic is so compelling and the resolve is so strong, the grand old Congress party will surely bring all its political capital to bear in making GST come alive. Marketers should, therefore, actively prepare for post-GST scenarios in their own industries. This will require a reassessment of competitive advantage, a relook at new or dormant consumer segments, and a possible reconfiguration of supply chains. Do not delay this effort, it will pay off very well.

Direct Tax proposals and Consumer Confidence

The Budget has also contributed to an overall feeling of consumer positivity, which is an essential ingredient of demand-led growth. Even prior to the Union Budget, the Nielsen consumer confidence index had shown that Indian consumer confidence was the highest in the world. Now, with the enhancement of the income-tax exemption limit (from Rs 1.6 lakh to Rs 1.8 lakh), the reduction in the cut-off age for senior citizen benefits (65 to 60 years), and the introduction of a new, very senior citizen category (80 years and above, with a Rs 5-lakh income-tax exemption limit), this feeling of confidence and happiness gets extended.

To tell the truth, these changes in direct taxation leave little additional disposable income in the hands of Indians. There is a uniform relief of only around Rs 2,000 per year per individual, not a large amount. Therefore, the main positive impact on consumer confidence will come through a second-order effect: the feeling of happiness that accompanies positive announcements, rather than the actual money saved in taxes. Also, it is relevant to point out that the Budget contains not a single direct tax proposal which adversely impacts consumers. This will also help ensure that a general positive mood prevails.

Semi-urban and Rural Markets: Set to fly high

Marketers should note that Budget 2011 has been generous to the agriculture sector. This will certainly fuel strong growth in villages and small towns, where agricultural income defines spending habits. For instance, credit flow to the agricultural sector has been increased to a whopping Rs 4.75 trillion. A 3 per cent interest subsidy has been offered to farmers during the forthcoming year. Removal of supply bottlenecks which impact agricultural produce has been highlighted as a budgetary imperative. These measures will top up the buoyancy created by good monsoons last year, and are likely to further enhance agricultural growth in the months ahead.

On account of the above, semi-urban and rural India will certainly have increased disposable incomes next year. The year 2011 will be an excellent one for a renewed growth thrust into these markets, even if previous years have not delivered encouraging results.

The future is green

For the second year running, the Budget has provided several incentives for “green” products, thereby, signalling its long-term intent. Excise duty on LED bulbs has been halved from 10 per cent to 5 per cent, which will create more demand for these energy-efficient devices, particularly amongst high-income homes and corporates. Excise duty on manufacturing of hybrid car kits has been reduced to 5 per cent. As the “green” sector is small, it may not constitute a large, standalone growth driver in the short-term, but the message is clear. Indian companies are being encouraged to view the “green” space as a highly desirable growth segment for the future, and marketers should actively explore how they can seize this opportunity in their industries.

Go for Growth!

Amidst these positive directions, the Budget also throws up some concerns and challenges. Central excise has been enhanced by 1 per cent on several products, and some categories such as branded garments have been subjected to 10 per cent excise duty, which is likely to lead to significant consumer price increases. Industry bodies have already highlighted these concerns. Also, an ambitious target has been defined for reduction of fiscal deficit, achievement of which is critical to ensure the good health of the economy.

But notwithstanding these specific issues, the broad thrust of the Budget is unmistakable. Go for growth, Pranabda has told us, loud and clear. Rapid sustained growth is our story, he appears to say, and we will back it with the required stimulus to industry and agriculture, radical GST reform, and feel-good tax proposals. Because growth will make our people prosperous, and will eventually lift India into the ranks of developed nations. As marketers, we should align with this story completely, we should leverage the positive impacts of this week's Budget, and set our sights on handsome double-digit growths in our respective markets. That's the big lesson from the Finance Minister's speech.

(Harish Bhat is Chief Operating Officer – Watches, Titan Industries Ltd. These are his personal views.)

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