February 3, 2022 | 08 min read
We live in a world where a wave isn’t necessarily the ocean wave that helps calm the mind and kindles fond memories. Instead, it’s often a reminder of the pandemic that’s repeatedly affecting and altering the way we live.
Another life-altering event in the life of any Indian business is the country’s annual budget which our finance minister has yet again brought out on 1st February 2022.
This, oftentimes can significantly change the way business is done & the manner in which consumption will grow.
All this macroeconomics can often be super confusing and meaningless to people like us, but we’ve tried to understand which way the wind is blowing.
We analyze sectoral impact by looking at three key pillars of consumer companies:
1. BOOSTING DEMAND
Higher Capex: Up 35.4% from Rs 5.54 Lakh Crore to Rs 7.5 Lakh Crore will boost direct and indirect employment. This will help enhance demand over the medium term.
Rural Economy: Spends such as the PM Awas Yojana, PM Gram Sadak Yojana, and MGNREGS will drive the rural economy by creating livelihoods and improving accessibility.
MSP payment to 163 Lakh farmers: Procurement of wheat and paddy will lead to over 2.37 Lakh Crore allocation to MSPs.
USO for Broadband in Rural Areas: 5% of USO will be utilized to enable Broadband and Mobile penetration in Rural areas.
Bizom Outlook: Clearly, the government is mainly focussing on medium to longer-term measures rather than short-term appeasement fixes to drive demand. This is definitely the harder path and needs to be applauded. Also, there is clearly the thought of bringing prosperity for the whole of India, connecting rural India strongly with the rest of the country, which is visible in the various allocations being done for rural India.
For FMCG companies, moving to Direct Distribution in rural India is becoming easier, and going in this direction, it will only get simpler with time. We’ve also seen rural being the key pillar of growth in the short term, and with these structural changes, we can see Bharat becoming the key growth pillar for India in the years ahead.
We see this being a validation of strategy for FMCG companies like Dabur, Godrej Consumer, ITC, and HUL, which are focused on building strong Direct Rural Consumption channels.
2. ENSURING EASY SUPPLY OF INPUT PRODUCTS
Higher MSPs for steady supply: An increase in allocation for MSPs, leading to higher MSPs will help ensure strong Agri produce. However, it does have the effect of taking inflation further up, especially in the food processing industry, where it is a crucial input factor.
Organic is good: Chemical-free Natural Farming will be promoted throughout the country.
Millets on your plate: Also, 2023 has been declared as the International Year of Millets. There is support for enhancing domestic consumption and branding millet products nationally and internationally.
Reduce Oil Imports: Make supply ingredients by increasing oilseeds production domestically and reducing import dependency.
Financial Inclusion: Driving financial inclusion in rural arrears to enable growth – In 2022, 100 per cent of 1.5 lakh post offices will come into the core banking system enabling financial inclusion. There will be an online transfer of funds between post office accounts and bank accounts. This will be helpful, especially for farmers and senior citizens in rural areas, enabling interoperability and financial inclusion.
Bizom Outlook: We’re seeing a solid encouragement towards organic and local millet-based product consumption in this budget. This is an encouragement towards healthy foods and also a pat on the back to the many startups, who have ventured into this space early over the last 3-5 years. With brands such as Soulfull being acquired by large companies like Tata Consumer Products, we can expect to see many of the large brands putting an increased focus on developing and putting out branded products in this space.
Cooking Oil prices over the last year have been hyper-inflationary. It has consistently been among the largest import expenses for India for many years. While it’s great to see the government take steps to correct this systematically, it will be a while before we reap any tangible benefits of increased domestic production. Till then, we remain at the mercy of global imports.
3. IMPROVING THE DISTRIBUTION NETWORK
A Logistics exchange is coming up: Unified logistics (Unified Logistics Interface Platform) will simplify the movement of goods by creating a data exchange among all mode operators (logistics players), which can be further designed for an Application Programming Interface (API). Potentially, this can reduce time and significantly reduce documentation, enabling the free flow of goods.
5 spectrum auctions are coming up: Required spectrum auctions will be conducted in 2022 to facilitate 5G mobile services rollout within 2022- 23 by private telecom providers.
Bizom Outlook: The enablement of 5G will give a big boost to enhance the omnichannel strategies of companies and will feed into the ambitious Open Network for digital commerce, that is being envisaged to help democratize online consumer demand.