Sewing up growth in rural India

The Budget’s increased fund allocation for rural development, agriculture, food security, and skills upgradation is expected to drive rural consumption. The Budget is largely positive for consumer markets (fast-moving consumer goods or FMCG, retail, and agribusiness), given the challenges of reining in expenditure from a current account deficit perspective.

The key sectors that will benefit are FMCG and agribusiness, including agri-inputs, agri-implements, and food processing. In addition, the textile and apparel sectors will benefit from lower custom duties, and technology-upgrade schemes. The revision in indirect taxes will have a minor impact on some sectors such as food services, cigarettes, auto, and mobile phones, while private consumption will largely be unaffected as there have not been any major changes in direct taxes.

In the budget, Finance Minister P. Chidambaram announced a 46 per cent increase (Rs 80,200 crore for 2013-14) in allocation for rural development programmes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), Pradhan Mantri Gram Sadak Yojana (PMGSY), and Indira Awaas Yojana (IAY). This is likely to boost overall rural consumption, which will further drive the growth of FMCG, agriculture, textiles and food processing industries. Additionally, the budget proposes to allocate Rs 5,000 crore to the National Bank for Agriculture and Rural Development to finance the construction of warehouses and cold storage facilities in an effort to reduce food wastage, curb inflation and, in turn, increase consumption.

The agriculture sector was allocated Rs 33,000 crore — a year-on-year increase of 22 per cent. Additionally, Rs 7 lakh crore has been allocated for agriculture credit schemes and extension of interest subvention on short-term crop loans during 2013-14. These proposals are likely to improve agri-inputs, agro-logistics, seed management, food processing, and the warehousing and logistics components of the value chain.

Assam , Bihar, Chhattisgarh and West Bengal were collectively allocated Rs 1,000 crore (for 2013-14) to boost the green revolution in eastern India.

The announced launch of ‘The National Livestock Mission 2013-14’ (with Rs 307 crore allocation) to attract investment and enhance productivity will boost the Ministry of Food Processing Industries’s idea of taking India from cereals to proteins.

The Government aims to provide vocational education to about 5 crore people in 2013-14 (90 lakh in 2012-13). The budget proposes establishing the National Skills Development Corporation, which aims to provide skill development education to about 1 lakh candidates in various industries such as food and retail during 2013-14.

To provide greater support to MSMEs (micro, small and medium enterprises), the budget allocates Rs 1,000 crore to the Small Industries Development Bank of India (50 per cent increase year-on-year), and proposes more non-tax benefits for the units in future. This will spur agricultural production and help grow the supply chain for the retail sector.

Investments in plant and machinery above Rs 100 crore will be allowed to claim a 15 per cent investment allowance for depreciation. This will further attract investments to strengthen the supply chain for food processing and logistics.

Various announcements on fund allocation for the Technology Upgradation Fund Scheme (TUFS), restoration of the ‘zero excise duty route’ for cotton and manmade fibre, and special allocation for the growth and sustainability of the handloom and power loom sectors will benefit the textile industry.

Proposed levy of service tax on all air-conditioned restaurants will impact the cost-competitiveness of the food services industry. Furthermore, newly imposed excise duty on mobiles, higher excise duty on cigarettes, cigars, cheroots and cigarillos will adversely impact volumes and demand in the respective sectors.

Private consumption expenditure is likely to remain unaffected, as there are no major changes in direct taxes, and the revision in indirect taxes will have only a minor impact on sectors such as food services and retail.

Overall, the budget provides a platform for growth in rural consumption. Subsequent progress will be determined by how effectively the allocations are deployed for generation of jobs, upgradation of skills, and improvement in productivity.

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