Budget 2022 Strengthens The Long Term Foundations For Indian FMCG

While the finance minister said these, it’s also essential to understand some important new announcements and if there is a way of leveraging those.

• Introduction of the Digital Rupee for efficient and cheaper currency management
• Income from Virtual Digital assets is to be taxed at 30%

Bizom Outlook: The government seems to have acknowledged the presence of Blockchain and other technology-based decentralized digital assets as a source of income. There seem to be definite benefits in using these, especially in terms of speed and cost while making cross-border payments. The inherent volatility of these digital assets notwithstanding, these look like they will become the key mechanism for any cross-border commerce. This can be very useful in reducing supply cycle time, leading to a lower inventory requirement for FMCG companies. So, if you’re not already looking at these as of yet, it may be a good time to start. No news is also great news! There’s been a general direction on increasing taxes for tobacco & associated products. The WHO has been recommending a 75% tax on these products. Surprisingly, Budget 2022 makes no mention of tobacco and increased taxes on them this year. Bizom Outlook: This automatically makes it positive news for companies like ITC, VST Industries, DS group and others in this sector. It also gives these companies more time to diversify into other areas of growth by leveraging on their existing distribution muscle built on the back of tobacco and its associated products. In Summary, There is no short-term silver bullet for the FMCG industry in this year’s budget to drive up consumption. With no extra direct income in consumers’ hands through tax cuts or even increased MNREGA increased allocation, the focus is on driving consumption through indirect means. While the emphasis remains very strong on driving rural consumption, this is being done while creating jobs and improving the country’s infrastructure by connecting Bharat stronger with the rest of India. In the past, India has demonstrated a great ability to leverage digital for growth with Aadhar, UPI etc. This remains the focus to drive growth and opportunities. With the logistics exchange and 5G, we will see this moving further ahead and becoming a key enabler in the future for the Open Network for Digital Commerce that the government is envisaging. Promotion for millets, chemical-free natural farming, and domestic oilseed production are all directional enablers of where significant consumption growth can be expected in the years to come. Driving consumption in the immediate short term will need rationalization of high inflation through the reduction in prices of Oil, Fuel, etc. With increased MSP allocations, this isn’t going away in a hurry.