The Consumption Dilemma

While Budget 2023 promises more disposable income, private consumption is unlikely to increase in a hurry.

- AJITA SHASHIDHAR

WE NEED more money in hands of people," Hindustan Unilever (HUL) MD & CEO Sanjiv Mehta said while announcing the company's Q3FY23 results. He was replying to a question about dealing with low consumption and volume growth, especially in rural markets, which contribute over 40% to revenues of most consumer product companies. "Value growth is still 6-8%, which means people are spending. But because inflation has been so high, they have had to cut down on volumes, which is completely understandable," Mehta added.

In Union Budget 2023, Finance Minister Nirmala Sitharaman paid heed to Mehta's suggestion by announcing personal income tax relief (income tax exemption limit increased from ₹2.5 lakh to ₹3 lakh, limit for rebate from ₹5 lakh to ₹7 lakh in the new income tax regime). The relief is expected to increase disposable incomes of taxpayers by ₹35,000 crore. She also announced an increase in capital investment outlay by 33.4% to ₹10 lakh crore. This would create employment in the infrastructure sector which, in turn, could increase disposable incomes and increase consumption. "This would be 3.3% of GDP, almost three times the outlay made in FY20. With the substantial increase, it is central to government's efforts to enhance growth and job creation, crowd in private investment and provide a cushion against global headwinds," she said in her Budget speech. Sitharaman also announced a capital outlay of ₹2.4 lakh crore for railways. The railways were allocated ₹1.4 lakh crore in Union Budget FY23, of which ₹1.37 lakh crore was for capital expenditure. She also announced 100 transport infrastructure projects for providing end-to-end connectivity to port, coal, steel and fertiliser projects.