The budget proposal to hike service tax and lack of sops for consumers may impact overall retail sector at the time when the consumer products sector looks to come out of its gloomy period of a decade, according to trade specialists.
The service tax increase from 12.36% to 14% will impact a host of consumer activities including eating out, movies, grooming, grocery shopping and phone bills which may add up to tighten household budgets, which will ultimately dampen industry's revival process.
Commenting on the increase in service tax, the Associated Chambers of Commerce & Industry of India (ASSOCHAM) president Rana Kapoor, said, “Though the budget has several positive spots, the dampeners could be the increase in service tax from 12 to 14 per cent and no hike in personal income tax limit.
The consumer items sector grew about 7 per cent in 2014-15, lowest in a decade, but is expected to go up to 10 per cent coming fiscal. Many firms had witnessed slight volume recovery in select items in the last quarter and were hopeful that the Budget could set the growth momentum.
Varun Berry, Britannia’s managing director, said the budget has disappointed the expectations of consumers and industry. "While there's a clear indication of future growth prospects, government’s action will decide how it translates into fuelling economy growth," he told Economic Times. With falling international prices of crude and palm oil, many consumer products companies which use them as raw materials were hoping to cut prices to boost demand.
But, excise duty on various commodities including mineral water, condensed milk and aerated drinks could lead to higher price-tags, affecting the monthly grocery spends of middle class people.
"The Budget is doing nothing to help consumption," opined Kishore Biyani, CEO of Future Group that operates Big Bazaar hypermarket chain. "We have been trying harder to attract consumers in the past few months but things like increase in service tax will dampen the consumers’ sentiment further," he told Economic Times.
Brick-and-mortal retail companies in India have been under severe stress, fighting decreasing consumer sentiment that has affected the footfalls while unprecedented discounts by online rivals are further taking away consumers from kirana stores.
Amit Jatia, VC at Westlife Development that runs burger-and-fries chain McDonald's outlets across southern and western India, said the service tax hike will be implemented across all its restaurants as and when it is enforced by the government.
The economy is projected to grow at 7.4% this fiscal year (2014-15) from 6.9% in 2013-14, as per the new GDP growth series, provided by the Central Statistics Office.