Union Budget 2023: Outlook for the FMCG Industry
The Indian Finance Minister’s Union Budget 2023 has created a buzz in the consumer goods industry. The budget has made some significant announcements that are expected to impact the FMCG companies positively. In this article, we will discuss the key impacts, opportunities, challenges, and outlook for the FMCG industry.
Impact of Union Budget 2023 on the FMCG Industry
The Union Budget 2023 has several implications for the FMCG industry, including the following:
Allocation for the Ministry of Rural Development increased
The budget has announced an increased allocation for the Ministry of Rural Development. This will create new opportunities for FMCG companies to expand their presence in rural areas. It will also raise demand for FMCG products in rural areas, which will create new markets for the consumer goods industry. The emphasis on augmenting farm income and the development of 5G applications are progressive measures for the country.
Allocation for the Ministry of Health and Family Welfare increased
The budget has also announced an increased allocation for the Ministry of Health and Family Welfare. This will boost the demand for Personal Care products. With increased funding for healthcare facilities, the demand for personal care products eg. hand sanitizers, soaps, and other personal hygiene products.
Customs duty reduced on certain raw materials
The budget has reduced customs duty on certain raw materials used in the manufacturing of FMCG products, eg. chemicals and packaging materials. This move will reduce the cost of production for FMCG companies and help them offer products at more competitive prices.
On the other hand, the jewellery industry will face higher costs as the basic customs duty on goods made from gold bars has been increased, leading to an anticipated rise in prices for gold, silver, and diamonds. However, jewellers remain optimistic that the changes in tax slabs resulting in increased disposable income will enhance consumer spending power and ultimately benefit the organized jewelry retail industry as a whole. Similarly, Finance Minister declared a 16 percent increase in NCCD on cigarettes which will make it costlier and impact sales for FMCG companies like ITC. These manufacturing companies will need to consider how to handle price-sensitive customers who may switch to the unorganized or unbranded market segment.
Expansion in Tier 2 and Tier 3 Towns
The doubling of per capita income to nearly 2 Lakh will stimulate consumption and generate greater demand in tier-2 and tier-3 cities. The latest economic forecast predicts that sales of electronics and household appliances are set to rise in the near future, due to a decrease in personal income tax and customs duty of electronic components. Lowering customs duties on inputs and parts of specific electronic goods such as lithium-ion batteries, TV components, and camera lenses would enhance the viability of improving backward integration, leading to increased local manufacturing of electronics. For instance, customers are expected to benefit from a 1 to 1.5 percent drop in LED television prices due to decrease in BCD on certain parts of open cells of TV panels, as the cost savings are expected to be passed on to them.
With the additional cash in hand, changes in consumer goods preferences, trends in the marketplace, and shifts in the economy are likely to make people spend more on basic and affordable FMCG products that are part of their daily lives. Also, FMCG sector, which is already grappling with inflation, receives a boost as disposable income rises. The surge in sales of consumer electronics and appliances is a great opportunity for FMCG companies to expand their product offerings and enter new markets. This will not only boost sales but also improve the standard of living of people in these areas.
The reduced cost of production can help companies provide better deals for increased sales and revenue. The reduction in customs duty is also expected to help the FMCG industry recover from the pandemic. The lower cost of production may also enable consumer goods industry to increase their profit margins while offering affordable products to customers.
Challenges for the FMCG Industry
The Union Budget 2023 has also brought some challenges for the FMCG industry, including the following:
The rising cost of raw materials
The cost of raw materials such as palm oil, and soybean oil has been increasing. There is an alarming surge in imports of edible oil, which poses a severe threat to the Nation’s edible oil security and requires prompt policy intervention. This translates to an increase in the cost of production for FMCG companies.
Increasing competition
The FMCG industry is highly competitive, and the increasing competition can put pressure on FMCG companies. Individual players need to innovate and offer new products and services to remain competitive.
Impact of COVID-19
The impact of the COVID-19 pandemic on consumer behavior and demand patterns continues to affect the FMCG sector. FMCG companies need to adapt to the changing market conditions to survive and grow.
Outlook for the FMCG Sector
The Union Budget 2023 presents a mix of opportunities and challenges for the FMCG industry. FMCG companies need to adapt to changing market conditions like high inflation and capitalize on the opportunities created by the budget. With the increased focus on rural development, electronics, and healthcare, the demand for FMCG products will only rise. Creating new markets and revenue streams for the industry is crucial for achieving growth and success in the years ahead. Thus, FMCG companies should focus on innovation, marketing, and product development to remain competitive in consumer durables segment. Additionally, they need to monitor the changing consumer behavior patterns.