On the face of it, corporate India should have done another jig around the boardroom table after the budget announcements. Capital expenditure saw a consistent hike for the last few years, while allocations cover the whole spectrum, from AI to R&D to startups, MSMEs and even measures to boost the local ecosystem manufacturing for anything from electronics to the green economy.
Even the industry’s big ask to generate employment as well as boost consumption by putting more money in the hands of the common man has been answered. Job-oriented schemes seemed to be the overriding theme of budget allocations, while the government put more money in the hands of the masses in the most spectacular way possible with income tax savings across the board and no tax at all for those earning up to 12 lakh rupees. Surely that will boost spending, which means consumer goods manufacturers are set to make a killing.
Why then is corporate India not chuffed enough?
The stock indices ended budget day flat, though the K-shaped divergence in the performance of various stocks was indicative enough — while anything from cigarette to FMCG goods, the very areas where sales had stagnated as the masses reduced buying, shot up on the news of the government putting more money in the pockets of the middle-class, others did not fare as well.
Sectors like real estate and cement faltered as the capex increase was peanuts compared to previous years. While the 2023 budget’s 10 lakh crore went up to 11.11 lakh crore in the 2024 interim budget, the increase this time has been a ‘puny’ 10,000 crore, to 11.21 lakh crore.
Also, with the government remaining serious about cutting the fiscal deficit and the major income tax cut foregoing about 1.26 lakh crore rupees in revenue, there are even questions on where the money will come from.
This budget would kick start a virtuous cycle of consumption-led growth,” said business body CII’s president Sanjiv Puri.
Of course, that virtuous cycle was supposed to kick in three budgets ago, but didn’t as the industry did not play ball. Will it be any different now?
While singing paeans to the budget in public, at least some in the industry seem more miffed at the focus moving from the ‘spend big’ formula of the post-Covid years towards a more direct and populist approach to pushing growth.
The bigger question will be whether all the additional spending power vested in the hands of the consumer class would lead to kickstarting the virtuous cycle of growth that has been ephemeral for long, or whether it will provide another chance for India Inc to hike prices taking advantage of the fatter wallets of the middle-class to make a killing.
Recent history post-Covid when corporates took capex spent by the government which was hoping for a virtuous cycle of growth and instead used it to improve their own profits provides no succour.
