India's consumption story has always been a significant driver of economic growth. With a burgeoning middle class, increasing urbanization, and a growing willingness to spend across various categories, the potential for consumption-led growth is immense. This potential is reflected in the public and private market valuations of consumer firms. However, several challenges, including limited disposable income, inflation, strained infrastructure, and ecosystems, constrain consumer spending and impact the consumption story. Large, scaled companies catering to broader sections of society are perhaps getting impacted the most.
The upcoming Budget 2025 presents a unique opportunity to address these challenges and unlock the true potential of India's consumer market. By implementing targeted measures, the government can stimulate consumption, enhance consumer confidence, and create a more attractive environment for businesses and consumers alike.
We can frame our budget wish list in two categories.
The first category includes measures to increase disposable income and long-term income security for the masses, as this is the large consumer group that underpins India’s consumption story. Allocations towards employment guarantees (NREGA), investments that incentivize job creation, and relooking at direct and indirect taxes, especially for the middle class, can enable more direct and credit-linked spending. Additionally, increased job security will further bolster consumer confidence and spending.
Employment guarantees like NREGA play a crucial role in providing a safety net for the rural population, ensuring that they have a steady source of income. This not only helps in reducing poverty but also boosts rural consumption. Investments that incentivize job creation, particularly in sectors like manufacturing and services, can lead to higher employment rates and, consequently, higher disposable incomes. By re-evaluating direct and indirect taxes, the government can provide relief to the middle class, allowing them to spend more on goods and services, thereby driving consumption.
The second category focuses on measures to incentivize those with higher disposable incomes to spend more on products and services that directly benefit the Indian economy. These products and services need to be competitive with global alternatives to attract the spending of the ‘well-to-do’. Hence, allocations made towards controlling inflation to improve consumer value, manufacturing incentives to create best-in-class products, and infrastructure and ecosystems to stimulate spending within India can impact the confidence and pride needed to sustain and grow consumer spending.
Controlling inflation is essential to ensure that the purchasing power of consumers is not eroded. High inflation rates can lead to higher prices for goods and services, making them less affordable for consumers. By keeping inflation in check, the government can ensure that consumers get better value for their money. Manufacturing incentives can help in creating high-quality products that can compete with global brands, encouraging consumers to buy domestically produced goods. Improving infrastructure and ecosystems, such as better roads, logistics, and digital connectivity, can make it easier for consumers to access products and services, further boosting consumption.
In conclusion, the budget needs direct allocations towards the long-term drivers of consumption. This will sustain and grow the confidence the world has in the India consumption story. By addressing the challenges of limited disposable income, inflation, and strained infrastructure, the government can create an environment that encourages consumer spending and drives economic growth. The measures outlined in this budget wish list can help unlock the true potential of India's consumer market, making it a key driver of the country's economic success
A version of the article was published on The Economic Times -Retail.com. The same can be read here
