Budget 2020: Despite no big announcements, new tax slabs expected to revive demand and boost spending

Venkata Susmita Biswas,Devika Singh

Union Budget 2020: retailers and consumer goods companies, which were expecting measures in the Budget to stimulate the economy and boost consumer spending, are of the view that initiatives for rural India and introduction of a new income tax regime could boost muted consumer sentiment. Commenting on the Budget, Krish Iyer, president and CEO at Walmart India, said, "The cuts in the personal income tax rates would increase disposable income in the hands of the Indian middle class, which will enhance consumption through improved purchasing power."

The FM has proposed a new income tax regime, cutting income tax rates and rejigging income tax slabs. As per the new regime, 70 tax exemptions have been removed and income of Rs 5-7.5 lakh will be taxed at 10%, down from 20%; income of Rs 7.5-10 lakh will be taxed at 15% (previously 20%); tax on income of Rsa 10-12.5 lakh is down from 30% to 20%, and income of Rs 12.5-15 lakh will be taxed at 25% (down from 30%).

Given the limited fiscal room available, consumer companies believe the government has done what it could. The FMCG sector has welcomed the announcements made by finance minister Nirmala Sitharaman. "The expectations from this Budget were very high, and it has partially delivered. The positive aspect is that it recognises that spurring consumption is clearly the need of the hour. Some of the measures being introduced should help improve consumer demand incrementally this year in both rural and urban India," said Vivek Gambhir, MD and CEO, Godrej Consumer Products.

Retailers, too, have welcomed the relief provided to consumers. Kumar Rajagopalan, CEO, Retailers' Association of India, said, "More money in the consumers' hands definitely boosts consumption; however, we have to calibrate for non-allowance of deductions." Rajat Wahi, partner, Deloitte India, observed: "The new tax regime puts money directly in the hands of the consumer.

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This encourages consumption over savings in the near term." Reviving rural demand is crucial to reigniting consumer sentiment. The Budget says it will put aside Rs 2.83 lakh crore for the agriculture sector, of which Rs 1.23 lakh crore has been allocated for rural development. "This thrust on agriculture, irrigation and rural development should fuel growth in a struggling rural economy," said Vivek Karve, CFO, Marico Limited. However, not all sectors have benefited. "More favourable announcements for other sectors such as real estate and auto, which are not faring well at the moment, would have further helped improve spending," said Wahi.

"The Budget has delivered the best it could. The industry had requested the government for measures to grow demand and spur consumption. But besides a few changes to personal income tax rates, not much will impact the demand and consumption story. The big gun announcements that the industry was expecting to stimulate the economy were missing, and the Budget falls short of expectations," said Sanjay Vakharia, CEO, Spykar Lifestyles.