Cheerful Indian Households

Aslowing global and US economy has made the finance minister flag off the gravy train for the consumers. The 204-million odd Indian households can buy cheaper soaps, deterg ents, mobikes, small cars, direct-to-home (DTH) satellite TV connections, medicines.

And yes, a cleaner glass of drinking water at home will also come cheap. Smokers of non-filter cigarettes will pay more as will people who are planning to buy mobile phones. However, both consumer sets will not have a problem — smokers because they are addicted and mobile buyers because they are unaffected as the price increase of 1% is too less to have any impact.

The finance minister has at one go addressed the objectives of inflation control (currently hovering just under 5%) as well as spurring consumer demand, which has been flagging in a host of sectors for the past one year, most notably in two-wheelers. The finance minister seems to have heeded the results of the ET-Hansa Pre-Budget Mood of the Nation poll, which said most people were worried about stagnating living standards and rising prices, and the consumer confidence was down.

Mr Chidambaram's tax proposals should push up consumer confidence. As he said, consumption drives production and that in turn drives investment. The 13-million middle-class households (annual household income between Rs 2 lakh and Rs 10 lakh), many of who pay income tax, have got a significant tax relief due to revision of tax slabs and increase in exemption limit. While a good amount of this extra income will end up as savings, a happy and confident consumer is likely to splurge as well.

Mr Chidambaram has ensured that broad swathes of consumers will benefit. Couch potatoes will be delighted because they can now switch to set-top boxes (STBs) and watch better quality programming. But this measure may drive the housewives of married TV junkies into a rage.

To keep the peace at home, the finance minister has made sure that fast moving consumer goods (FMCG) like soaps, detergents, toothpastes, et al –– may see a marginal 2-3% price cut, may be not even that, but consumers can take comfort that manufacturers will at least not increase prices now, which they may have been planning before the Budget.

There should also be a general cheer in many homes because small cars, two wheelers and their tyres (!) will now be cheaper. For the struggling 7.5-million units two-wheeler market, the reduction in excise will translate into price cuts between Rs 1,000 and Rs 1,800, enough to jump-start this hugely price-sensitive market.

A similar excise duty cut for small cars (less than 4-metres in length) translates into Rs 8,000 to Rs 16,000 savings for the buyer, enough to rev up the 1.4-million passenger vehicle market into 20% plus growth trajectory once again.

And for whatever the fiscal merits of the Rs 60,000-crore loan waiver for small and marginal farmers, the FMCG industry, which garners almost half of its sales from rural India, is sure to witness a rural demand upsurge as evident from BSE FMCG Index up around 1% in market when the broader index, Sensex declined 1.38%.

Retail prices of medicines across the board may come down by approximately 4%, though it may be much more for those under price-control. Budget 2008-09 has made every aspect of a consumer's life — in health or illness, consuming at home or moving around — a little more easier on her pocket. And that's no mean achievement.