This Union Budget 2016, Finance Minister had macro challenges to address such as achieving fiscal deficit targets and working towards attaining the GDP growth rate of 7.6 per cent amidst a slowing FMCG industry that has been seeing a single digit growth for the past five years, it is expected that in the tenure of the Modi government it will see a double digit growth. Finance Minister in this budget has walked a tight rope to manage the fiscal deficit and provide a boost to the FMCG Sector.
Some of the reforms impacting the FMCG sector are outlined below:
* Measures to support agriculture and farmer’s income - the government has proposed various agrarian driven measures such as implementation of irrigation projects, promotion of organic farming, approval of crop insurance schemes, ensuring adequate and timely flow of credit to farmers and introducing schemes to support farmers in the aftermath of natural calamities. There is also a budgetary allocation of approximately Rs 360 billion for agriculture and farmers’ welfare that is proposed to double farmers’ income by 2022, which should create the much required transformation growth in rural India.
* FDI relaxation for food processing industry - With a view to provide an impetus to the food processing industry and generate employment opportunities in this sector, the government proposes to allow 100 per cent FDI through FIPB route in marketing of food products produced and manufactured in India. By allowing 100 per cent FDI in this sector, the farmers will be able to obtain the right prices for their produce and the same will reach the markets at the right time.
* Allowing local retail shops to remain open all days of the week In order to provide level playing field to the unorganized retail stores, the government proposes to introduce a Model Shops and Establishments Bill for the states that would allow local shops to remain open all seven days a week, on an optional basis.
* With a thrust on ease in business, manufacturers have been allowed to revise returns, there is a cap on the interest rates at 15 per cent and an Indirect tax Dispute Resolution Scheme, 2016 has been introduced to conclude the proceedings with safeguard from prosecution. While some of the tax and policy measures outlined are welcome and positive towards the FMCG Sector, there are certain tax amendments such as removal of accelerated depreciation, no weighted deduction of R&D spends, higher excise duty on certain products, no change in individual tax slabs, etc that could provide a road block to the growth of the sector.
