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Budget 2018: FMCG, farm sectors to lean on consumption to boost growth

Could push revenue growth at consumer and farm sector-related firms but gains might be tempered by higher inflation and borrowing cost

Krishna Kant & Viveat Susan Pinto  |  Mumbai 

arun jaitley, budget 2018
FM Arun Jaitley outside MoF in North Block on Budget day. Photo: PTI

On the face, there is little direct gain for corporate India in the Union provisions for FY18-19. However, consumer and farm sector-related companies are likely to gain by way of higher demand for their products in the coming quarters.

The central government plans to raise expenditure in the agricultural sector and rural areas through various proposals. These could result in more disposable income with rural folk, boosting consumption in these areas. It would benefit makers of consumer goods such as Hindustan Unilever (HUL), ITC, Dabur, Consumer, Havells, Bajaj Electricals, Hero MotoCorp, TVS Motor and Bajaj Auto.

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“The intent is to raise purchasing power in the rural and farm sector, through greater subsidies and spending on welfare schemes,” says Dhananjay Sinha, research head at Emkay Global Financial.

In a way, this will continue the fiscal policy of 2017-18. Private and government final consumption expenditure was nearly 80 per cent of the incremental growth in Gross Domestic Product (GDP) during the first half of FY18; the comparative figure was 65 per cent of GDP during FY17.



“As expected, the government continued its effort to boost the agriculture sector. With emphasis on doubling farmers’ income by 2022 and providing various schemes and initiatives to boost the rural economy, disposable income in rural India will increase. The FMCG (fast moving consumer goods) sector will be one of the biggest beneficiaries," said Dhanraj Bhagat, partner, Grant Thornton India.

This had translated into higher volume and revenue growth for makers of consumer goods in FY18, compared to a year before. “Between 2013 and 2016, underlying volume growth of the (FMCG) market was three per cent, which in the first nine months of 2017-18 improved to five per cent. This will get better in time,” recently said HUL’s managing director (MD), Sanjiv Mehta. Makers of consumer durables, including of automobiles, also reported growth buoyancy in quarterly results. Sinha of Emkay expects the trend to persist.

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“The is largely positive for FMCG. Pro-active efforts to drive demand and increase consumption should revive growth,” says Vivek Gambhir, chief executive (CEO) at Consumer.

Companies also see a boost to the packed food industry. “The steps announced in the will help attract larger corporate investments in food processing and make it more attractive for players like us to establish stronger linkages,” says Kishore Biyani, CEO at Future Group.


Analysts add the gains to corporate India could be tempered by higher consumer inflation and greater borrowing cost. “The numbers show greater reliance on revenue expenditure to boost demand; capital expenditure has taken a back-seat. This, with higher support prices for farm produce, could push up retail inflation and hurt company margins. I also foresee a further rise in fiscal deficit, leading to more borrowing and higher bond yield that might push up corporate borrowing cost,” says G Chokkalingam, MD at Equinomics Research & Advisory.

The bond market reacted negatively to the numbers. Yield on the 10-year government bond closed at 7.61 per cent, the highest since March 2016.


  • The has a slew of measures for boosting income and consumption in the rural areas
  • Aims to double farm income by 2022 and provide house to every poor by 2022
  • MSP for kharif crops to be raised to 1.5 times of the cost of produce this year. It is expected to put more money in the hands of farmers and, hence, boost demand and consumption
  • National Health Protection scheme to provide Rs 500,000 benefit per family every year to 100 million households
  • Free cooking gas to 80 million poor households
  • Women contribution to provident fund (PF) reduced to 8% (of basic salary), from 12% in the first 3 years, translating into higher disposable income
  • Allocation to the food processing sector doubled to Rs 14 billion –likely to benefit fruit & vegetable growers
  • An agri-market infrastructure fund with a corpus of Rs 20 billion will be set up for developing and upgrading agricultural marketing infrastructure
  • Launch of Operation Green on lines of Operation Flood with total corpus of Rs 5 billion
  • Allocation to farm credit increased to Rs 11 trillion from Rs 10 trillion earlier




First Published: Fri, February 02 2018. 00:50 IST