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Published On: Mon, Jan 29th, 2018

Top 5 expectations of the FMCG sector from Budget 2018-19

With budget 2018, we expect rationalization of indirect tax/GST on LPHN (Low Price High Nutrition) Biscuits. While the Government has rightfully lowered GST on items consumed by middle and lower economic classes including bread which is exempt, and rusk, tea, coffee and milk powder at 5%, an 18% GST on LPHN Biscuits (Plain biscuits available at INR 100 per Kg and below like Glucose, Marie and Milk Biscuits and typically sold in low unit packs costing INR 2,3,4 and 5) which serve poorest of the poor is beyond comprehension. Items consumed by affluent like jams, jellies, ketchup and squashes are taxed at 12%, higher tax on LPHN sold below INR 100/kg biscuit must be not more that 5 % and the tax slab must increase depending on the premiumness of the biscuit sub-categories. So while industry is not averse to paying higher GST of 18% on biscuits above INR 100 per Kg, in interest of the financially challenged, the Government must differentiate between biscuits consumed by them and by affluent class. The biscuits category is a very price sensitive category and any change in taxation can lead to stagnation of growth in the market.

Increase in Income tax slab/exemption limit: 
The FMCG sector witnessed slow growth in the last year owing to after effects of demonetization and GST roll out. In order to stabilize market and revive growth, the Government must increase the income tax slab/exemption limit. This would lead to increase in disposable income which will help revive the growth by improving demand. While this will please middle-class consumers as they will have more money in their hands, it will also spur demand.

Development of Infrastructure in Rural India:
The Government must ensure that rural infrastructure projects are expedited and implemented at the right time. It should lay down detailed process with time of completion, for new infrastructure projects in rural India. Certain big ticket projects which meet specified criteria should be given a fast-track route. Rural focus has multiple benefits- it will not only increase rural income through employment generation by these projects, but also lead to better connectivity giving a boost to rural/agri businesses. Despite record output, we have seen farmer incomes falling. Better roads/connectivity will not only help agricultural businesses but also enable improved distribution network for FMCG products across India.

Focus on Job creation:
There is a growing discontent among youth across urban and rural India about employment opportunities. Automation, as we know it, is adding to the worry of not creating enough jobs. While there are consumers, who are ready to pay for products and services, there are enough and more opportunities available for generating employment. We as a nation are developing and there is huge scope of employment generation by creating Infrastructure and maintaining it.

Lower Corporate Tax: 
Post GST, manufacturing companies who had set up bases in backward/less developed and hilly areas, have seen shrinking of area based tax benefits. Given government’s earlier promise of lowering corporate tax to 25%, Companies expect government to reduce Corporate tax in this Budget.

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